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THE    COUNTRY   BANKER. 


•  :  •-  :  • 


THE  COUNTRY  BANKER 

HIS    CLIENTS,   CARES,   AND    WORK. 
FROM   AN    EXPERIENCE   OF   FORTY   YEARS 

By  the  late  GEORGE  RAE 

WITH   AN   INTRODUCTION  AND   NOTES 

By  F.  E,  STEELE 

AUTHOR   OF    "PRESENT-DAY   BANKING;"    SOMETIME   LECTURER   IN   BANKING  ANB 
CURRENCY   TO  THE   LONDON   CHAMBER   OF   COMMERCE 


No  man  is  so  foolish,  but  may  gire  another  good  counsel 
sometimes  ;  and  no  man  is  so  wis«>,  but  may  easily  err,  if 
be  will  take  no  other  counsel  but  his  own 

B$n  Jonson 


NEW    YORK 
CHARLES    SCRIBNER'S    SONS 

1920 


h\ 


v^^ 


^ 


First  Edition 

.     April,     1885 

Second  Edition 

.     June,     1885 

Third  Edition 

.     July,      1885 

Fourth  Edition 

.     July,      1885 

Fifth  Edition 

.     Feb.,      1886 

Reprinted     . 

.     Jan.,      1888 

Reprinted     , 

.     Sept.,     i838 

Reprinted     , 

.     April,     1890 

Reprinted     . 

.     Nov.,     1892 

Reprinted     . 

.     Oct.,      1894 

Reprinted     . 

.     Jan.,      1899 

Reprinted     . 

,         .     March,   1902 

Cheaper  Edition 

.     Oct.,      1902 

Reprinted     . 

•     Jan.,      1903 

Reprinted     . 

.     Dec,      190& 

Reprinted     . 

.    Dec.,      I9i(> 

Sixth  Edition 

.     May,      1918 

Reprinted  {iZth  Im 

pressi 

m) 

.     Jan.,      1920 

PREFATORY    NOTE. 


When  this  Edition  of  The  Country  Banker  was  resolved 
upon  by  Mr.  Murray  and  my  Father,  I  httle  anticipated 
that  it  would  devolve  upon  me  to  write  this  brief  Preface. 
The  cheaper  form  of  publication  had  the  warm  approval  of 
my  Father,  who  was  anxious  that  the  experience  of  a  long 
lifetime  should  be  at  the  service  of  the  youngest  Bank  officers, 
to  whom,  in  spirit,  this  volume  is  dedicated;  and  Mr. 
Murray's  courtesy  has  enabled  that  wish  to  be  carried  out 
in  the  present  form.  The  text,  like  that  of  all  intermediate 
editions,  is  identical  with  that  of  the  Fifth  Edition.  The 
frontispiece  is  taken  from  the  portrait  by  F.  HoU,  R.A. — 
presented  to  my  Father  by  the  Shareholders  of  the  North 
&  South  Wales  Bank — the  Bank  in  which  he  found  the  most 
absorbing  interest  and  the  closest  attachments  of  his  life. 

This  little  volume  may  perhaps  be  read  with  a  thought 
of  the  author,  who  was  to  the  last  in  closest  sympathy  with 
the  young,  and  whose  very  recent  death  has  called  forth 
tributes  of  almost  unexampled  kindness  and  sympathy. 

EDWARD    RAE. 


Redcourt,  Birkbnhbad, 

17/A  ScpUmbef,  190a. 


493968 


AUTHOR'S    PREFACE 

My  purpose  in  writing  this  book  is  not  to  formulate 
afresh  the  fundamental  principles  of  banking,  but  rather 
to  show  these  principles  in  operation ; — ^to  exhibit,  so  to 
speak,  the  machinery  of  banking  in  motion. 

In  pursuance  of  this  endeavour,  I  have  availed  myself 
of  illustrative  matter,  gleaned  from  the  incidents  of  an 
experience,  now  stretching  over  forty  years,  of  the  life 
and  work  of  Country  Banking,  in  its  relations  with 
customers  and  shareholders,  the  officials  in  its  employ- 
ment, and  the  general  public. 

My  desire  is  less  to  advance  special  views  of  my  own, 
than  to  exemplify,  from  fresh  points  of  observation, 
the  accustomed  lines  and  recognized  limits  of  prudent 
banking ;  a  rational  observance  of  which  would  have 
rendered  the  bank  failures  of  our  time  fewer  in  number, 
less  scandalous  in  their  revelations,  and  less  calamitous 
in  their  results. 

I  use  the  epistolary  form  in  the  work  because  it  gives 
scope  to  a  more  familiar  treatment  of  what  most  people 
regard — mistakenly,  I  think — as  a  subject  devoid  of 
human  interest. 

I  desire  to  add  that  where  I  seek  to  elucidate  precept 
by  example,  which  is  the  leading  purpose  of  the  book, 
I  do  not  draw  upon  imagination  for  my  materials. 
With  slight  modifications,  in  point  of  time,  place,  and 
circumstance,   the   transactions   quoted   have   had  their 


viii  Preface. 

equivalents  in  fact ;  whilst  my  human  exemplars,  if  they 
have  less  claim  to  authentic  history,  are  not  wholly 
indebted  to  these  pages  for  their  existence. 

After  the  publication  of  the  Eighth  Impression  of  this 
book,  a  controversy, — ^arising  out  of  Mr.  Goschen's 
famous  speech  at  Leeds, — concerning  the  Cash  Reserves 
of  Banks,  the  operation  of  the  Act  of  1844,  and  other 
monetary  problems,  engaged  at  intervals  the  pens  of 
various  writers  of  more  or  less  authority ;  but  so  far  as 
the  discussion  has  borne  upon  the  Cash  Reserves  of 
Country  Banks,  it  has  served  to  emphasize  the  views  on 
that  subject  which  have  been  advocated  from  the  outset 
in  these  pages.     [See  Banking  Finance,  Letter  XXIX.] 

As  regards  the  Act  of  1844,  I  adhere  to  my  contention 
that  a  modification  of  that  measure,  in  the  direction 
suggested  and  for  the  reasons  assigned  in  Letter  XLI. 
{The  Future  Outlook),  is  the  leading  requirement  of  oui 
monetary  system,  and  would  of  itself  enable  us  to  face, 
with  comparative  equanimity,  the  financial  vicissitudes 
of  the  future. 

G.  R. 

Redcourt,  Birkenhead. 
AusHsty  1892. 


CONTENTS. 

«-£TTER  PAOm 

Preface ...               .       .       .        .  v 

I.     The  Function  of  Manager.       .       .    .  i 

II.    Personal  Credit 6 

III.  l^ke  Testimony  of  a  Balance-sheet        ,  14 

IV.  The  Credit  of  Limited  Companies       .  27 
V.    Cover  for  Debt 3a 

VI.    Overdrawn  Accounts        .        .       .       .44 

VII.    Insolvent   Trading 50 

VIIL    Occasional  Overdrafts       ....  54 

IX.    Recall  of  Advances                     .       .    .  59 

X.    Bankruptcy 64 

XI.     Trade  Bills     .       .       .       .               .    .  70 


Contents. 


LETTER  PAQ, 

XII.    Loan  Bills  and  Notes  .  .       .79 

XII L    Negociability  of  Bills        .       .       .    .    8$ 

XIV.    Personal  Security    .       .       .       .  91 

XV.    Collateral  Senndty  : 

Deposit  of  Title  Deeds 96 

Railway  Stock    .         .         ,  .         .101 

Securities  to  Bearer 102 

Transfers  in  Blank    .         ,         .         .         -  103 

Local  Shares 104 

Shipping  Securities     .  ,         .         .105 

Bills  of  Lading     .         .         .         ....  107 

House  Property ,   X09 

XVI.    Securities  which  are  not  Security: 

Life  Policies m 

Reversions. 112 

Bills  of  Sale  .         .        .        .  •   ^^3 

Second  Mortgages        .         •  .  .114 

Building  Land  .  .  .  .  -  .  117 
Buildings  and  Machinery  .  .  .  ,119 
Securities  involving  Liability  ,        .     .120 

XVII.    Deposits  and  Runs      .       .  •       "5 

IKNWl.    Interest  and  Discount : 

Interest  on  Deposits   .         •  .         .         .  135 

Discount  on  Bills.        .  •        •        .    .  138 

Interest  on  Overdrafts        •  ,         •         .  I4» 


Contents.  xi 


LETTER  PAGE 

XIX.    Bank  Charges: 

On  Lodgments   .         ,         .         .  •   I4i 

On  Payments  to  Debit .         .         .  •  '47 

Commission  on  Overdrafts .         .         .         .149 

XX.    Circulation  : 

Drafts  after  Date 154 

Own  Notes 156 

XXL    The  Use  of  a  Banker     .       .       .    ,  160 
XXII.    Salaries 165 

XXIII.  Office  Expenses: 

Premises  ,  ,  ,  .  .  ,  ,  171 
Incidental  Expenses  .  .  ,  ,  .173 
Subscriptions  and  Charities    .        .         .        175 

XXIV.  Routine  Duties: 

Attendance 178 

Private  Conduct    .         .         .         .         .     .   181 

Instructions  from  Head  Office  .  .  .183 
Managerial  Responsibility      .         ,         .     ,  184 

XXV.  Correspondence : 

With  the  Head  Office  .  ,  .  ,186 
With  Customers  .  .  ,  .  .  .  i88 
A  Banker's   Opinion  .         .         ,         .189 


^"  Contents. 


PAG» 


LETTER 

XXVI.    Competition  in  Banking      .       .       .192 
XXVII.    A  new  Bank  for  Oxborough        .    .  197 


XXVIII.     T^e  Office  of  Chief  Manager    .       .  20a 


207 
aio 
211 


XXIX.  Banking  Finance: 

The  Balance-sheet 

The  Reserve     .         .         ,        ,         . 

A  Reserve  of  20  per  Cent,  . 

A  Reserve  of  One-third   .         .         .         .217 

Composition  of  the  Reserve  .         ,         .     .  220 

Re-disconniing  ,         ,  222 

XXX.  Advances : 

Limit  thereof 22- 

Bank  Credits 227 

XXXI.     Advances  to  Shareholders  ,       .       .331 
XXXII.     Large  Accounts 235 

XXXIII.  Bills  of  ExcJiange: 

Varieties  of  Bills       .         .         ,         ,        .   243 
Kite-flying 2^^ 

XXXIV.  Reserve  Liability ,57 


Contents,  xiii 


LETTER  PAGE: 

XXXV.    Capital  and  Shares     ....  26* 
XXXVI.    Profit  and  Loss  : 

Profits  of  Banking 269 

Risks  of  Banking         ,         .         ,         .271 
Provision  for  Loss  .         .         .        275 

Dividend  and  Bonus  .  •  *75 

XXXVII.     The  Rest 279. 

XXXVIII.  Opening  of  New  Branches      .       .  285 

XXXIX     The  Directorate aS^ 

XL.  Rights  and  Duties  of  Shareholders  296 

XLI.  The  Future  Outlook  ....  30^ 


Frontispiece. — Portrait  of  The  Author. 

Eic}ud  from  the  Pictun  by  F.  HoU,  R,Am 


xvi  Introduction, 


the  best  of  the  present  writer's  recollection,  in  1880  only  one 
purely  English  bank — and  that  an  institution  with  very  few 
branches — had  a  Foreign  Exchange  Department.  Now 
all  this  is  changed.  Branch  banks  both  in  town  and  country 
are  placarded  with  reminders  that  Foreign  Exchange  busi- 
ness is  transacted  through  their  agency,  and  important 
joint  stock  banks,  in  some  instances  single-hancied  and  in 
others  in  concert  with  kindred  institutions,  have  opened 
and  are  opening  branches  and  agencies  abroad.  This 
tendency  to  internationalization,  moreover,  as  has  already 
been  suggested,  is  only  in  its  infancy.  In  no  spirit  of '  post- 
bellum  Entente- ism  '  it  may  safely  be  surmised  that  it  will 
rapidly  develop  when  the  soil  of  Russia  and  of  France,  of 
Belgium  and  of  Italy,  is  freed  from  the  invader,  and  when 
the  misunderstandings  with  neutral  States,  inevitable  in 
time  of  war,  have  become  things  of  yesterday. 

Thus  far  as  regards  changes  in  the  structure  of  the  bank- 
ing system.  But  '  The  Country  Banker,'  as  its  sub-title 
indicates  and  its  contents  amply  prove,  is  concerned  not 
only  with  the  banker  but  with  his  customers,  and  for  this 
reason  it  seems  desirable  to  point  out  that  while  bankers 
have  been  engaged  during  the  last  few  decades  in  over- 
hauling the  fabric  of  their  business  and  bringing  it  up  to 
date,  their  customers  also  have  been  active  along  similar 
lines.  It  is  not  bankers  only  who  have  been  turning  their 
businesses  into  joint  stock  companies,  absorbing  other  con- 
cerns, and  extending  their  sphere  of  operations.  A  like 
process  has  been  observable  in  businesses  which  have  to  do 
with  the  manufacture,  the  distribution,  and  the  sale  of 
commodities.  One  outcome  of  this  is  that,  in  the  commercial 
world,  limited  companies  with  large  resources  and,  in  many 
cases,  with  numerous  branches,  have  taken  the  places 
formerly  occupied  by  the  individual  trader  and  manufac- 
turer, while  the  modest  establishment  of  the  more  or  less 
old-fashioned  shopkeeper  has,  in  certain  trades,  had  to 
make  way  for  the  showier  and  (sometimes)  more  enter- 
prising multiple  shop,  under  the  charge  of  a  manager  and 
controlled  and  directed  by  a  central  board.  Whether  we 
approve  changes  of  this  sort  or  regret  them  is  beside  the 


Introduction.  xvii 


.  mark.    They  have  occurred,  and  will  occur.      '  The  day  of 
small  industries  on  individual  lines  is  gone.' 

Then,  also,  legislation  has  considerably  altered  some  of 
the  conditions  to  which  the  author  calls  special  attention. 
He  inveighs,  for  instance,  against  the  state  of  the  law,  at 
the  time  when  he  wrote,  with  regard  to  limited  companies, 
and  he  is  very  severe  in  his  strictures  on  the  state  of  affairs 
rendered  possible  by  the  then  existing  Bankruptcy  Law. 
In  both  these  matters  his  criticisms  were  fully  justified, 
but  in  each  of  them  legislation  has  effected  considerable 
reforms.  The  law  relating  to  companies  has  been  improved 
and  simplified  by  the  Companies  (Consolidation)  Act,  1908, 
and  many  of  the  anomalies  of  Bankruptcy  Law  have  been 
removed  by  the  Bankruptcy  Act,  1890,  the  Bankruptcy 
and  Deeds  of  Arrangement  Act,  1913,  and  the  Bankruptcy 
Act,  1914. 

In  view  of  changes — many  of  them  far-reaching  in  their 
scope — such  as  those  touched  upon  in  the  preceding 
paragraphs,  one  might  well  be  pardoned  for  anticipating 
that  much  of  the  subject-matter  of  this  book  would  prove 
to  be  out  of  date,  but  this  anticipation  is  by  no  means 
realized  on  a  re-perusal  of  its  contents.  Such  re-perusal 
demonstrates  clearly  enough  that,  with  a  few  annotations, 
the  treatise  is  as  useful  to  the  bank  manager,  and  to  those 
who  seek  to  qualify  for  management,  as  at  the  time  when  it 
was  written.  Page  after  page,  and  chapter  after  chapter, 
will  be  found  substantially  as  applicable  to  present-day 
banking  conditions  as  to  those  then  obtaining.  All  the 
problems  which  then  confronted  the  manager,  and  in  the 
solution  of  which  it  was  the  author's  intention  to  assist 
him,  confront  him  still.  The  reason  of  this  is  to  be  found 
mainly  in  the  fact  that  it  is  the  structure,  more  than  the 
methods,  of  banking  in  which  the  changes  referred  to  in 
this  introduction  have  occurred.  Take  the  amalgamation 
movement  as  a  case  in  point.  This  movement  has,  as  we 
have  noted,  altered  the  whole  structure  of  the  banking 
system,  but  it  has  left  the  daily  practice  of  banking  prac- 
tically unaltered.  Now  this  book  is  concerned  largely  with 
the  internal  management  of  banks,  with  such  matters  as 

b 


xviii  Introduction, 


banking  securities,  and  with  the  manifold  relationships 
existing  between  managers  and  their  customers.  Amalga- 
mations hav6  had  scarcely  any  effect  in  these  matters. 
When  one  bank  absorbs  another,  it  takes  over  the  manager 
and  staff  and  it  takes  over  the  accounts  en  bloc,  and  the  only 
difference  wliich  the  manager  and  his  customers  note  in 
their  dealings  with  one  another  after  the  amalgamation  is 
a  tendency,  at  the  outset  of  the  new  regime,  in  the  direction 
of  what  they  will  probably  call  *  red  tape,'  and  what  the 
*  absorbing  '  bank  will  describe  as  '  improved  methods.' 
This,  and  perhaps  a  few  necessary  alterations  in  the  system 
of  keeping  the  branch  books,  is  all.  In  other  respects 
things  go  on  precisely  as  they  did  before  the  amalgamation. 
So  with  a  feature  to  which  attention  has  been  called  in  the 
matter  of  retail  trade  :  the  tendency  to  joint  stock  and  the 
increase  in  the  number  of  '  multiple  shops.'  The  manager 
of  the  multiple  shop  pays  in  his  receipts  to  the  bank  as  the 
individual  trader  did  before  him,  and  the  chief  difference, 
in  relation  to  the  banker,  between  him  and  the  shopkeeper 
whom  he  has  replaced  is  that  whereas  the  shopkeeper,  when 
he  required  banking  accommodation,  borrowed  from  the 
branch,  the  local  shop  has  its  borrowing  done  for  it  by  its 
chief  office,  which  conducts  its  financing  (as  it  does  its 
buying)  on  a  large  scale,  and  frequently  with  the  head- 
quarters of  the  bank.  From  this  cause  there  may,  at  a 
particular  branch,  be  rather  fewer  borrowers,  but  the 
business  of  the  customers  who  have  not  changed  their 
status — and  these  are  in  a  large  majority — goes  on  as 
before.  The  securities  tendered  by  them  are  of  the  same 
class,  and  there  is  the  same  scope  for  the  exercise  of  the  bank 
manager's  judgment  with  regard  to  them  as  there  was  under 
the  old  conditions. 

In  one  direction  only — and  that  an  important  one — do 
the  precepts  of  the  book  need  supplementing.  Reference 
has  been  made  to  the  comparatively  new  but  rapidly 
growing  development  of  banking  in  its  international 
relationships,  and  to  banks  having  started  Foreign  Exchange 
business  as  a  branch  of  this  development.  In  view  of  this 
departure,  every  branch  manager  in  these  days  should  make 


Introduction,  xix 


a  point  of  making  himself  fully  acquainted  with  the  contents 
of  one  of  the  standard  elementary  works  on  the  working  of 
the  Foreign  Exchanges,  and  should  follow  daily,  with  intelli- 
gent interest,  the  fluctuations  in  the  Foreign  Exchange 
rates  given  in  the  principal  daily  papers.  He  is  not  expected 
to  become  an  expert  in  such  matters.  Special  training  and 
experience  are  both  necessary  for  that.  What  is  required 
is  that  if  he  be  requested  to  put  through  Foreign  Exchange 
transactions  for  a  customer,  he  shall  be  able  to  comprehend 
the  nature  of  such  transactions  and  to  transmit  instructions 
intelligently  and  intelligibly  to  his  head  ofhce. 

To  the  general  manager  of  a  bank — and  it  will  be  noticed 
that  a  section  of  the  book  treats  of  the  duties  of  the  General 
Manager — this  extension  of  the  foreign  activities  of  banks 
is  a  matter  of  far  greater  and  more  vital  interest.  The 
author,  in  the  light  of  experience,  reviews  and  enlarges 
upon  the  principal  duties  of  a  general  manager  in  his  own 
day — the  "  financing  "  of  his  bank  as  a  whole  ;  watching 
and  recommending  investments  ;  keeping  a  vigilant  eye  on 
large  advances  and  on  proposals  for  such  advances  as  they 
come  forward  ;  holding  himself  always  in  close  touch  with 
the  directors,  with  the  chiefs  of  departments  at  head  office, 
and  with  the  more  important  transactions  at  the  larger 
branches ;  weighing  the  possibilities  of  extending  the 
business  by  judicious  amalgamation  and  by  opening  new 
offices  in  growing  districts ;  keeping  well  before  him  the 
welfare  of  the  staff.  The  head  office  problems  with  which 
the  author  does  not  deal — ^for  the  sufficient  reason  that  they 
did  not  exist  in  his  time — are  those  which  arise  from  this 
recent  extension  of  English  banking  activity  abroad.  The 
general  manager  of  a  bank,  in  addition  to  discharging  the 
onerous  functions  just  specified,  and  others,  has  now  to  make 
up  his  mind,  and  be  prepared  to  advise  his  board,  as  to  the 
countries  offering  the  greatest  scope  for  the  extension  of  the 
activities  of  his  bank  ;  also  as  to  whether,  if  his  recommen- 
dations commend  themselves  to  his  board,  or  if  the  directors 
have  other  views  of  their  own  on  the  matter,  the  banlc  shall 
enter  upon  any  new  departure  alone,  or  in  conjunction  wdth 
other  institutions,  and  as  to  who  shall  be  entrusted  with  the 


XX  Introduction. 


important  duty  of  carrying  out  the  board's  final  decisions 
in  such  matters.  Yet  another  group  of  problems  is  now 
emerging,  owing  to  a  dawning  recognition  of  the  useful 
part  which  has  been  played  by  certain  foreign  banks, 
especially  in  Germany,  in  extending  special  support, 
sometimes  single-handed,  but  more  often  in  specially 
organized  groups,  to  selected  branches  of  home  industry, 
with  a  view  to  enabling  the  industries  selected  to  compete 
more  efficiently  and  successfully  with  foreign  enterprises  of 
the  same  kind. 

These  are  some  of  the  problems  which  now  claim  the 
attention  of  the  directors  and  chief  officials  of  our  banks, 
and  it  would  not  be  right,  even  in  so  rapid  a  review  of  present 
day  banking  tendencies  as  is  embodied  in  this  introduction, 
to  ignore  them.  If  our  banks  are  to  keep  pace  with  the 
times  in  a  period  of  upheaval  such  as  that  through  which  the 
nation  is  passing,  and  to  face  successfully  the  complicated 
and  pressing  commercial  and  financial  problems  which  now 
confront  them,  banking  officials  at  headquarters  will  need 
to  take  a  wider  view  of  their  functions  and  to  enlarge  their 
mental  horizon.  The  absence  from  this  book,  for  the  suffi- 
cient reason  indicated,  of  a  recognition  of  these  new  func- 
tions of  a  chief  manager,  is  of  little  moment,  for  such  officials 
have  ample  opportunities  of  obtaining  guidance  as  to  their 
duties  from  sources  other  than  books,  but  it  is  a  matter  to 
which,  in  any  re-survey  of  the  scope  of  the  work,  a  reference 
had  to  be  made. 

A  few  words  now  as  to  the  method  adopted  in  the  revision 
of  this  book.  Points  calling  for  revision  have  been  com- 
mented on  in  footnotes,  the  editor's  footnotes  being 
numbered,  to  distinguish  them  from  those  of  the  author, 
which  are  marked  by  asterisks.  The  footnotes  have  been 
made  as  few  as  possible.  Frequent  notes  on  points  of 
immaterial  detail  are  not  only  unnecessary ;  they  irritate 
the  reader.  Where  there  has  been  a  change  in  practice  or 
in  law,  it  is  of  course  indicated,  but  where  figures  which  were 
current  when  the  book  was  written  are  quoted  in  the  text 
solely  in  order  to  enforce  points  which  still  need  to  be 
emphasized,  they  have  been  left  unaltered.    This  is  not  a 


Introduction.  xxi 


book  of  statistics,  but  a  guide  to  daily  banking  practice. 
In  every  instance  where  figures  are  quoted  in  it  they  are 
quoted,  not  with  a  view  ta  giving  information,  but  in 
illustration  of  some  point  of  practice,  and  it  is  for  this 
reason  that  where  the  point  still  appears  to  the  editor  to 
stand  in  need  of  illustration,  the  figures  have  been  left. 
Any  other  method — short  of  re-writing  the  book,  which  is 
in  no  sense  necessary — would  have  resulted  in  anachronism. 
It  would  be  superfluous,  after  all  these  years,  to  enlarge 
on  the  merits  of '  The  Country  Banker,'  but  to  one  of  them 
a  reference  may  be  allowed.  A  feature  of  it,  only  too  rare 
in  treatises  having  finance  for  their  theme,  is  that  it  is 
intelligible  and  interesting  even  to  readers  who  can  claim 
little  or  no  technical  acquaintance  with  its  subject-matter. 
This  is  largely  due  to  the  almost  personal  form  in  which  the 
author  has  cast  the  results  of  his  close  observation  and  long 
and  varied  banking  experience.  He  does  not  deal  in  abstrac- 
tions. When  he  wishes  to  drive  a  lesson  home  he  does  so, 
invariably,  by  means  of  concrete  instances.  The  manager 
who  succeeds  Mr.  Littleworth  at  the  Oxborough  branch  of 
the  District  Union  Bank,  and  with  whose  difficulties  the 
treatise  is  mainly  concerned,  is  no  abstraction.  Neither  is 
Mr.  Littleworth.  Both  are  real ;  creatures  of  flesh  and 
blood,  and  we  kave  met  both  of  them.  The  same  holds 
true  of  the  branch  customers  whom  the  author  portraj^, 
and  no  bank  manager  will  experience  any  difficulty  in 
identifying  them  and  giving  them  a  "  local  habitation  and  a 
name.''  This  pervading  quality  of  "  humanism,"  one  has 
good  reason  to  know,  has  done  much  in  the  past  to  commend 
the  book.  It  will  not  be  its  least  recommendation  now  that 
the  circle  of  banking  readers  has  been  enlarged  by  the 
inclusion  of  women,  and  the  number  of  general  readers  of 
financial  works  is  steadily  increasing. 


4,  Bartholomew  Lane,  E.G. 
December,  191 7. 


THE 


COUNTRY    BANKER. 


LETTER    I. 

THE    FUNCTION    OF  MANAGER. 

Let  a  man  be  sure  to  drive  his  business  rather  than  let  it  drive 
him.  When  a  man  is  but  once  brought  to  be  driven^  he  becomes  a 
vassal  to  his  affairs :  they  master  him^  which  should  by  him  be 
commanded,  Owkn  Feltham. 

The  management  of  the  Branch  in  Oxborough  of  the 
District  Union  Bank  is  an  important  position  to  have 
reached,  before  you  have  well  left  behind  you  the  days  of 
your  youth.  Your  advancement  is  hailed  by  your  friends 
with  pardonable  enthusiasm,  and  is  naturally  a  subject 
of  honest  pride  and  gratification  to  yourself.  But  in- 
creased rank  and  additional  pay  in  the  service  of  banking 
have  their  drawbacks.  You  will  find  that  they  bring 
with  them  a  serious  heritage  of  unaccustomed  duties 
and  anxieties  ;  and  it  is  certain  that  the  success  of  your 
management  will  largely  depend  upon  your  early 
recognition  of  the  fact,  that  the  interests  concerned  in 
your  appointment  far  exceed  your  own  in  range  and 
importance. 

To  the  good  people  of  Oxborough  you  will  stand  in 
the  delicate  relation  of  arbiter  of  credit.  Thousands  of 
pounds  will  every  week  be  paid  across  your  counter 
in  discounts  and  advances  to  a  variety  of  persons,  and 
you  will  have  to  satisfy  your  mind  in  every  case,  before 
parting  with   the    Bank's  money,  that  it    is  required 


f  Tii'  Qoriipitry  Banker.  [i-et.  i 

for  legitimate  business  use,  and  not  for  rash  and  foolish 
speculation. 

It  is  hardly  necessary  to  suggest  that  in  your  dealings 
with  the  public  there  must  be  a  total  absence  of  bias — 
religious,  political  or  social.  When  a  man  brings  you 
his  banking  account,  you  do  not  require  to  know  whether 
he  goes  to  church  or  chapel,  nor  how  he  voted  at  last 
election,  nor  who  his  grandfather  was.  The  hundred 
pounds  at  the  credit  of  honest  Grimes  the  farrier,  who 
signs  himself,  '  William  Grimes  X  his  mark,'  are  of  the 
same  use  in  banking  as  if  the  money  stood  at  the  credit 
of  a  peer  of  the  realm.  There  is  no  respect  of  persons 
in  banking.  Your  doors  are  open  to  all  sorts  and  con- 
ditions of  men,  except  that  you  draw  the  line  at  dis- 
honesty. You  will  have  no  dealings  with  a  rogue,  if  you 
know  it.  You  will  not  open  even  a  deposit  account  with 
a  stranger,  unless  he  be  satisfactorily  introduced,  lest  you 
find  that  you  have  been  entertaining  a  rascal  unawares, 
who  is  making  use  of  the  cheque-book  which  you  have 
supplied  him  with,  to  victimize  half  a  score  of  innocent 
people. 

You  do  not  abate  your  rate  of  discount  on  Brown's 
paper  the  fraction  of  a  farthing  because  he  is  your 
friend  ;  neither  would  you  add  a  fraction  to  it  if  he  were 
your  enemy. 

In  banking  the  scope  for  the  feelings  is  limited.  You 
discount  a  bill,  or  you  lend  a  man  money,  or  you  refuse 
to  do  either,  as  the  case  may  be,  not  as  a  matter  of 
sentiment  or  affection,  but  purely  as  a  matter  of  pounds 
shillings  and  pence. 

To  your  Directors  you  will  stand  in  the  fiduciary 
relation  of  manager  of  the  funds  which  they  may 
authorize  you  to  employ  in  discounts  and  advances  at 
Oxborough  Branch. 

As  these  ripen  day  by  day  and  return  in  money  to 
your  till,  you  replace  them  with  fresh  discounts  and 
advances,  and  these  again  with  others,  and  so  on  in 
endless  succession.  In  this  way  you  turn  your  resources 
over  several  times  a  year,  and  thereby  incur  a  fresh 


Lrr.  I.)  The  Function  of  Manager.  3 

series  of  banking  risks  at  every  turn.  Opportunities  for 
making  bad  debts  will  thus  come  to  you  in  abundance 
and  variety.  It  is  not  too  much  to  say  that  they  will 
offer  themselves  to  you  daily  throughout  the  year.  It 
will  be  the  daily  study  of  your  business  life,  therefore,  to 
learn  to  distinguish  at  a  glance  those  transactions  in 
banking  which  are  safe  and  legitimate,  from  those  which 
are  unsafe  and  pernicious. 

To  acquire  this  knowledge  and  apply  it  with  unfailing 
success,  and  thus  avoid  the  worst  pitfalls  which  lie  in 
your  business  path,  your  perceptive  faculties  must  be 
acutely  awake  and  your  wits  in  faultless  working  order 
all  the  year  round.  The  slightest  tendency  to  a  mental 
folding  of  the  hands  to  sleep  during  banking  hours  must 
be  wrestled  with  at  once  and  overcome. 

The  Manager  who  is  not  at  all  times  vigilant  to  note 
every  change  in  the  circumstances  of  his  customers,  the 
aspect  of  their  accounts,  the  quality  of  their  bills  and  the 
value  of  their  securities ;  but  gives  way  to  mental  in- 
dolence, and  lends  a  loose  ear  to  applicants  of  easy  con- 
science for  plausible  advances,  cannot  fail  in  time  to 
bring  loss  to  his  Branch  and  trouble  upon  himself.  The 
needy  drawer,  the  sanguine  acceptor,  and  the  ardent 
indorser  soon  find  him  out,  and  he  becomes  their  prey. 

There  is,  no  doubt,  as  you  suggest,  a  possibility  of 
being  over-cautious  ;  but  in  banking  that  is  one  of  the 
cardinal  virtues,  compared  with  the  opposite  evil  and 
mischief  of  being  over-credulous. 

On  every  occasion,  when  you  have  the  shadow  of  a 
fear  as  to  the  safety  of  any  given  transaction,  there  is 
only  one  rule  and  it  is  without  exception — you  must 
give  the  Bank  the  benefit  of  the  doubt.  When  the 
reasons  for  and  against  a  proposed  transaction  are  so 
evenly  poised  in  the  scales  of  your  judgment  that  the 
balance  hesitates  to  incline  either  way,  a  solution  of  the 
difficulty  will  sometimes  be  found  by  making  the  enquiry 
within — Would  you  make  the  advance  if  the  money 
were  your  own  ? 

In  the  course  of  your  management  you  will  not  always 


4  The  Country  Banker,  [let.  i. 

be  the  medium  of  pleasing  intelligence  from  your 
Directors  to  your  clients.  You  have  to  intimate  to  Mr. 
Bareacres,  perhaps,  that  the  loan  of  a  few  thousand 
pounds  for  a  year  or  two  at  three  per  cent,  without 
security,  for  which  that  gentleman  has  applied  to  the 
Directors,  cannot  be  granted.  The  fact  probably  is  that, 
apart  from  other  fatal  objections  to  the  transaction,  Mr. 
Bareacres  is  not  safe  for  anything  like  the  amount.  But 
you  are  not  obliged  to  tell  him  so.  Without  impugning 
his  credit  to  his  teeth,  the  refusal  of  the  loan,  even  if 
conveyed  to  him  in  the  mildest  language,  will  be  dis- 
appointment enough  to  a  man  of  sanguine  disposition ; 
which  I  take  to  be  the  normal  temperament  of  that 
variety  of  borrower,  who  makes  periodical  applications 
to  bankers  for  ridiculous  advances  on  impossible  terms. 

Mr.  Bareacres  will  either  accept  the  decision  of  your 
Board  with  a  good  grace,  or  he  may  resort  to  irritating 
comment,  in  which  case  it  will  be  well  to  put  a  guard 
upon  your  temper.  Amongst  other  remarks  he  may 
suggest  perhaps  that  your  Bank  hasn't  the  money  to 
spare  >  Nevertheless  it  would  be  a  mistake  to  fly  into 
a  passion  or  bandy  words  with  him.  Rather  accept  the 
sneer  as  a  drollery  on  his  part,  and  offer  to  lend  him 
twice  the  money  on  approved  security  and  rational 
terms.  He  will  thus  be  discomfited  on  ground  of  his 
own  choosing,  and  leave  you  master  of  the  situation. 

In  a  certain  great  English  town  many  years  ago, 
there  flourished  two  managers  of  banks,  so  widely 
opposed  in  temperament  and  manner,  that  it  was  a 
common  saying  in  business  circles  that  it  was  pleasanter 
to  have  a  transaction  declined  by  the  one  than  to  have 
your  wish  granted  by  the  other.  The  one,  people  said, 
was  a  courtier,  the  other  a  bear.  It  might  be  as  well 
perhaps  if  you  took  a  note  of  this ;  because  even 
'manners  and  deportment'  would  seem  to  count  for 
something  in  the  final  rounding  off"  and  finish  of  the 
complete  Bank  Manager. 

And  whilst  you  are  careful  to  curb  your  own  temper, 


ixT.i]  The  Function  of  Manager.  5 

under  any  strain  to  which  it  may  be  exposed  in  the 
course  of  your  business,  you  will  require  from  your 
subordinates  at  the  Bank  the  exercise  of  a  similar  re- 
straint ;  because  no  amount  of  affability  on  your  part 
will  reconcile  a  client  to  its  absence  on  theirs.  Let  it  be 
understood  at  once  and  with  emphasis,  that  the  *  inso- 
lence of  office  *  shall  have  neither  place  nor  tolerance  at 
Oxborough  Branch.  You  have  a  right  to  expect  from 
your  staff  that  courteous  civility  in  their  intercourse  with 
the  customers  of  the  Bank  which,  it  is  to  be  presumed, 
they  exercise  in  their  intercourse  with  each  other. 

It  would  not  be  seemly,  for  example,  that  half  a  dozen 
people  should  be  kept  waiting  at  your  counter  whilst 
your  cashier,  Mr.  Coigne,  is  absorbed  in  the  morning 
paper,  or  in  a  surreptitious  volume  from  Mudie's,  or  in 
correcting  the  proof  of  his  forthcoming  article  on  the 
currency  for  the  Oxborough  Gazette.  Neither  ought  he 
to  look  calmly  on,  whilst  a  client  from  the  country  is 
working  himself  into  much  heat  and  perplexity,  in  a 
futile  attempt  to  fill  up  one  of  your  blank  forms,  which, 
although  in  themselves  of  undeniable  use,  are  not  models 
of  clearness  to  the  agricultural  mind.  Instead  of  holding 
himself  coldly  aloof,  Mr.  Coigne  would  exercise  a  truer 
dignity  were  he  to  accord  a  word  or  two  of  advice,  or 
even  a  helping  hand  to  a  customer  thus  bewildered.  It 
would  be  little  for  Mr.  Coigne  to  give,  but  much  for  a 
nervous  client  to  receive ;  for,  even  amongst  educated 
people,  some  are  to  be  found,  to  whom  the  simplest  pro- 
cesses of  banking  are  still  subjects  of  secret  wonder  and 
curious  misconception. 


LETTER    II. 

PERSONAL    CREDIT. 

My  meaning  in  saying  he  is  a  good  man^  is  to  have  you 
understand  that  he  is  sufficient :  yet  his  means  are  in  supposition. 

Merchant  of  Venice. 

The  leading  subject  of  your  daily  education  as  a 
banker  will  be  to  learn  whom  to  trust. 

Given  a  certain  individual  as  principal  or  surety  in  a 
proposed  transaction,  the  question  which  you  have  to 
solve  is — how  many  hundreds,  or  how  many  thousands,  as 
the  case  maybe,  will  he  be  *good  for'  to  the  Bank ;  at  what 
figure  can  you  safely  put  his  individual  responsibility  ? 

To  insure  a  reliable  solution,  you  have  first  to  ascer- 
tain what  the  man  is  *  worth  ' — that  is  to  say,  what  he 
would  have  remaining  for  himself,  in  money  or  money's 
worth,  after  clearing  off  the  whole  of  his  debts  and 
other  liabilities. 

For  the  most  part  you  will  have  to  rely  for  this 
knowledge  on  hearsay  and  the  opinion  of  others.  You 
will  consequently  have  to  sift  the  information  which 
you  may  gather  as  to  the  position  of  individuals  with 
the  utmost  care,  because  on  no  other  subject  of  daily 
gossip  is  there  a  greater  tendency  to  exaggeration  or 
mischievous  credulity. 

You  will  have  early  occasion  to  observe,  amongst  other 
things,  that  the  opinions  afloat  as  to  the  means  and  posi- 
tion of  people  are  mostly  of  stereotyped  character.  The 
origin  of  these  opinions  is  always  more  or  less  obscure : 
but  when  it  once  comes  to  be  said — it  does  not  seem  to 
matter  when  nor  by  whom — that  So-and-so  is  good  for 
so  much,  his  worth  will  pass  current  for  that  amount  for 


LET.  11.]  Personal  Credit, 


years  without  challenge  ;  until  some  day  he  collapses,  to 
the  ruin  of  some,  the  injury  of  many,  and  the  wonder- 
ment of  all. 

When  therefore  you  are  confidently  assured,  by  some 
one  who  professes  to  know,  that  Mr.  Bounderby,  for 
example,  is  worth  twenty  thousand  pounds,  put  your 
informant  to  the  question.  Let  him  tell  you  in  what 
form  Mr.  Bounderby's  worth  exists — whether  in  land,  or 
houses,  or  business  capital,  or  shares,  or  money  lent,  or 
otherwise,  and  whether  his  property,  real  or  personal,  is 
free  of  charge  or  incumbrance.  The  probability  is  that 
your  informant  can  give  you  no  such  information  ;  and 
that  in  that  respect  he  is  the  mere  echo  of  antecedent 
echoes.  His  opinion  will  be  found  in  most  cases  to 
rest  on  that  most  unreliable  of  authorities — everybody. 
Everybody  says  so :  therefore  it  must  be  true. 

If  he  seek  to  cover  a  retreat  from  his  first  position  by 
a  flank  movement  in  the  direction,  let  us  say,  of  Mr. 
Bounderby's  expectations,  and  assure  you  that  he  will 
have  a  large  amount  at  his  father's  death,  your  informant 
must  still  be  put  to  particulars ;  because  this  reversion 
may  not  be  absolute,  it  may  be  tied  tightly  up  on 
Bounderby  himself  for  life  and  go  to  his  wife  and 
children  afterwards. 

In  matters  of  personal  credit  a  well-regulated  scepticism 
is  the  soundest  frame  of  mind  to  cultivate.  *  Let  the 
greatest  part  of  the  news  thou  hearest,*  says  Quarles,  *  be 
the  least  part  of  what  thou  believest:  lest  the  greater  part 
of  what  thou  believest  be  the  least  part  of  what  is  true.' 

Ask  the  first  farmer  you  meet  next  market  day  what 
he  considers  Squire  W —  to  be  worth,  and  he  will  quote 
you  a  figure,  in  all  likelihood,  absurdly  wide  of  the  mark. 
You  yourself  know  the  Squire's  rental  to  a  pound, 
because  he  banks  with  you.  You  also  know  that  the 
estate  is  strictly  entailed  and  that  his  income  dies  with 
him,  and  therefore  that  the  worthy  Squire's  reputed 
wealth  is  a  popular  delusion. 

Ask  your  leading  tradesman  what  he  considers  the 
means  of  his  customer  Colonel  H —  may  be,  and  he  will 


8  The  Country  Banker,  [lit.  n. 

tell  you  that  the  Colonel  must  be  rich,  because  he  lives 
like  a  gentleman,  and  never  owes  his  tradesmen  a 
shilling.  Nevertheless,  when  the  good  Colonel  dies, 
would  it  surprise  you  to  learn  that  he  has  lived  up  to 
his  income  all  his  life  and  left  nothing  ? 

When  you  are  assured  that  Maltby  has  made  ten 
thousand  pounds  in  hops,  do  not  believe  it.  Divide  by 
ten,  and  in  nine  cases  out  of  ten  you  will  be  nearer  the 
mark.  But  register  the  fact  in  your  memory,  because  if 
Maltby  has  made  money  this  time,  he  has  an  equal 
chance  of  losing  it  next. 

Be  equally  sceptical  when  you  are  assured  that 
Bouncer  has  lost  a  *  pot  of  money '  in  something  else, 
until  you  have  had  the  rumour  verified  ;  because  a  gain 
or  loss  in  business,  in  these  days,  becomes  magnified  in 
passing  from  mouth  to  mouth  to  ridiculous  excess,  and 
is  hardly  surpassed  in  quickness  of  growth  by  Falstaff's 
men  in  buckram. 

When  any  rumour  reaches  you,  therefore,  either  to 
the  credit  or  discredit  of  a  man,  have  a  care,  before 
acting  upon  it,  to  sift  it  to  the  bottom:  carefully 
weighing  the  probabilities  for  and  against,  and  the 
evidence  on  which  they  rest,  as  if  you  were  hearing 
a  cause  in  a  court  of  law.  Business  calumnies  espe- 
cially are  of  extraordinary  vitality.  You  shall  expose 
and  stamp  one  out,  as  you  imagine,  and  in  a  few 
months  it  will  come  back  to  you  again  from  some  dis- 
tant quarter  as  fresh  and  brazen  as  if  you  had  never 
crushed  it  under  an  angry  heel.  Whilst  you  have  con- 
ceived it  extinct  and  forgotten,  it  has  been  merely 
absent  on  a  tour  of  the  district. 

But  in  many  instances  the  only  information  which 
you  will  obtain  will  be  of  a  nature  which  you  cannot 
put  to  the  proof.  It  will  be  of  the  vaguest  kind  and 
often  contradictory.  One  informant  will  appraise  a 
man  as  good  for  so  much:  another  will  value  him  at 
half  the  money.  Either  may  be  right — ^you  cannot  tell: 
or  both  may  be  wrong,  and  the  truth  lie  midway  between 
them  :  but  it  will  be  mere  conjecture  either  way. 


LET.  II.]  Personal  Credit 


In  such  cases  a  prudential  rule  to  find  the  measure  of 
a  man's  safety,  from  a  banker's  point  of  view,  would  be 
to  follow  the  method  suggested  in  Maltby's  case :  given 
the  popular  estimate  of  a  man's  worth,  divide  by  ten, 
and  the  quotient  will  be  the  result  required. 

You  smile  at  this  novel  adaptation  of  the  rule  of 
division  :  but  give  the  figures  a  personal  application,  and 
they  will  not  perhaps  look  so  entertaining.  Given  a 
man  reputed  to  be  worth  ;^5000,  but  of  which  you 
have  no  actual  proof,  would  you  feel  justified  in  lending 
him  more  than  £  5CXD  without  security  out  of  your  own 
pocket  ? 

Never  trust  to  a  man's  means  or  safety  as  seen  through 
the  telescope  of  rumour  ;  you  will  find  his  truer  diameter, 
as  a  rule,  by  reversing  the  glass. 

As  regards  annuitants  of  all  kinds,  clergymen,  naval 
or  military  officers,  professional  men  and  salaried  officials 
of  every  degree,  it  has  to  be  borne  steadfastly  in  mind 
that  their  incomes  die  with  them.  If,  therefore,  they 
have  laid  nothing  aside,  and  have  no  property  beyond 
their  life  incomes  to  fall  back  upon,  they  are  manifestly 
ineligible  to  a  bank,  either  as  borrowers  on  their  own 
behalf,  or  as  sureties  for  other  people. 

If  they  are  living  within  their  revenues,  the  balances 
of  their  accounts  with  you  will  always  be  in  their 
favour:  but  if  their  accounts  once  get  on  the  debtor  side 
of  your  books,  the  means  of  repayment  must  be 
regarded  as  obsctire,  and  the  date  of  redemption  as 
indefinite. 

Take  O — ,  for  example,  a  most  respectable  man,  but 
without  property  or  means  beyond  his  professional 
income  which  he  spends  in  full :  out  of  what  conceivable 
fund  is  he  to  repay  the  several  hundred  pounds  for 
which  he  has  been  allowed  to  creep  into  your  debt 
without  security  ?  It  cannot  be  the  proper  business  of  a 
bank  to  enable  any  man  who  is  wholly  dependent  upon 
an  income  which  terminates  with  his  life,  to  anticipate 
and  spend  that  income,  or  any  portion  of  it,  in  advance, 


lO  The  Country  Banker.  (let.  n. 

and  thus  assist  in  placing  a  burden  upon  a  borrower's 
back — a  veritable  Old  Man  of  the  Sea — ^which  he  can 
never  shake  off. 

In  seeking  to  know  whom  to  trust  on  the  strength  of 
hearsay,  it  has  to  be  confessed  that  we  have  not  found 
this  source  of  knowledge  to  be  altogether  satisfactory  or 
conclusive  But  in  the  case  of  people  who  bank  with 
you,  you  have  in  your  ledgers  a  record  which  will  enable 
you,  in  many  cases,  to  check  and  rectify  the  estimate  of 
their  means  and  position  which  is  current  out  of  doors. 
A  man's  bank  account  will  not  necessarily  disclose  what 
he  is  worth :  but  its  entries,  debtor  and  creditor,  will 
serve  as  tracks  to  indicate  with  some  degree  of  clearness 
the  line  of  progress  along  which  he  is  moving  towards 
either  failure  or  success.  Your  customers  are  un- 
conscious diarists  of  a  portion  of  their  lives.  Every 
account  in  your  books  is  a  record,  more  or  less  graphic, 
of  the  financial  history  and  progress  of  the  customer, 
contributed  by  himself. 

In  evidence  of  the  teaching  which  your  ledgers  thus 
afford,  let  us  take  the  account  of  your  client,  Mr.  Giles 
Borax.  He  has  recently  retired  from  a  lucrative 
business,  and  his  wealth  is  popularly  rated  at  any 
amount  from  a  hundred  and  fifty  to  five  hundred 
thousand  pounds,  according  to  the  more  or  less  fervid 
imagination  of  your  informant.  But  the  items  on  the 
credit  side  of  his  account  will  be  a  safer  guide  to  the 
fact,  than  the  most  confident  assertions  of  rumour. 
These  items  mainly  consist  of  dividends  on  money  in 
the  Funds,  or  invested  in  leading  railway  and  other 
shares  or  debentures.  It  will  be  an  easy  task  to 
calculate  from  these  the  approximate  value  of  Mr. 
Borax's  property.  If  his  revenue  from  all  sources  be 
£  10,000  a  year,  you  will  not  be  far  from  the  mark  if  you 
take  it  all  round  at  twenty-five  years'  purchase,  which 
would  put  his  worth  at  a  quarter  of  a  million— -less  mort- 
gages or  other  charges,  if  any,  upon  his  property.  Semi- 
annual debits,  identical  in  amount,  to  the  same  payees, 


LET.  II.1  Personal  Credit.  1 1 

will  sufficiently  indicate  the  existence  of  incumbrances, 
if  there  are  any  such. 

If  you  are  curious  to  know  whether  his  net  income 
exceeds  or  falls  short  of  his  expenditure,  you  have 
merely  to  compare  the  balance  with  which  he  com- 
mences the  year  with  that  with  which  he  ends  it,  first 
excluding  any  transactions  on  capital  account  from 
your  figures.  He  may  have  been  laying  money  out  on 
loan  or  investments,  for  example,  or  calling  money  in  : 
in  either  case,  these  items  would  be  excluded  from  your 
calculation. 

It  is,  no  doubt,  possible,  as  you  suggest,  that  Mr. 
Borax  may  not  pass  all  his  rents  and  revenues  through 
his  account,  and  that  any  estimate  in  that  event,  based 
upon  its  figures,  would  be  defective.  So  much  the  worse 
for  Mr.  Borax ;  but  the  defect  will  be  on  the  side  of 
safety,  so  far  as  you  are  concerned.  It  will  make 
him  appear  to  be,  by  so  much,  less  opulent  than  he 
really  is. 

You  find  serious  difficulty,  you  say,  in  these  occa- 
sional readings  of  accounts;  because  some  of  your 
customers  draw  their  cheques  in  blank — that  is,  in 
favour  of  a  number,  or  the  initials  of  the  payee,  instead 
of  his  name.  It  does  not  follow,  however,  that  cheques 
are  thus  drawn  with  intention  to  deceive.  The  parties 
may  desire  to  keep  their  money  transactions  to  them- 
selves ;  and,  if  they  are  never  in  your  debt  in  any  form, 
they  have  a  plain  right  to  do  so.  But  if  they  are  debtors 
to  the  Bank,  and  especially  if  their  indebtedness  be  un- 
covered by  security,  their  right  to  work  their  accounts  in 
the  dark  ceases,  and  the  habit  should  be  given  up.  If 
you  trust  them  with  your  money,  you  have  a  right  to  at 
least  a  general  notion  of  what  they  are  doing  with  it  It 
is  true  that,  even  when  an  account  is  worked  on  the 
anonymous  principle,  it  is  easy  to  gather  from  the  in- 
dorsements and  other  inscriptions  on  the  cheques  them- 
selves much  of  what  you  desire  to  know :  but  that  is  no 
reason  why  the  man  who  borrows  the  Bank's  money 
should  be  allowed  to  work  his  account  in  cipher,  and 


12  The  Country  Banker,  [lkt.  n. 

put  you  to  the  trouble  of  finding  the  cipher  out.  His 
cheques  ought  to  reveal  their  object  by  proper  mention 
of  names  or  purposes,  and  not  in  the  darkened  speech 
of  numerals. 

In  your  reading  of  any  account  you  have  carefully  to 
guard  against  a  mere  off-hand  and  superficial  glance  at 
the  figures.  As  a  case  in  point,  let  us  take  the  account 
of  Stokes  &  Co.,  by  whom  your  Bank  made  a  bad  debt 
in  the  time  of  your  predecessor,  Mr.  Littleworth.  What 
misled  Mr.  Littleworth  was  the  fact  that  the  firm  had 
always  a  substantial  balance  at  their  credit.  He  inferred 
from  this  that  they  had  capital  in  their  business  even  to 
overflowing,  and  his  astonishment  was  great  when  they 
stopped  payment  one  day,  with  some  hundreds  still  at 
the  credit  of  their  cash  account.  Nevertheless  it  was  so. 
Stokes  &  Co.  were  dealers  in  timber,  bought  it  on  six 
months*  credit,  and  got  immediate  possession  of  the 
article.  This  they  proceeded  to  dispose  of  to  their  cus- 
tomers, and  drew  upon  them  against  sales,  and  the 
proceeds  of  the  bills  thus  drawn  they  placed  straightway 
to  the  credit  of  their  bank  account  They  succeeded  in 
this  way  with  the  greatest  ease  in  keeping  a  good 
balance  at  their  credit,  seeing  that  they  had  always  the 
produce  of  their  sales  in  hand  long  before  they  had  to 
pay  for  the  timber  themselves.  By  reference  to  the 
account,  Mr.  Littleworth  might  have  noticed  that  the 
acceptances  passed  through  it  during  the  twelve  months 
preceding  their  failure  reached  ;^20,cxx) ;  and  the  ac- 
ceptances having  each  six  months  to  run,  it  followed 
that  Stokes  &  Co.  were  constantly  in  debt  some  ;^  10,000 
for  timber,  the  bulk  of  which,  as  it  proved,  they  had  sold 
to  weak  joiners  and  impecunious  builders.  When  half  a 
score  of  these  came  to  grief,  by  reason  of  a  collapse  in 
building  enterprise,  the  modest  capital  of  Stokes  &  Co. 
vanished,  and  gave  place  to  a  balance  deficient  of  many 
times  the  amount;  whilst  the  ;^500  at  their  credit  on 
your  books  still  left  the  Bank  to  prove  for  an  unpleasant 
amount  on  a  batch  of  worthless  bills. 

You  have  to  beware,  therefore,  of  placing  too  much 


LET.  IT.]  Personal  CrediL  13 

reliance  on  the  balance  usually  at  a  man's  credit  as  a 
test  of  his  means,  until  you  have  first  seen  how  the 
balance  is  created.  If  you  find  that  he  pays  mostly  by 
acceptance,  and  rarely  in  cash,  you  will  conclude  that 
his  balance  in  your  hands  is  merely  fugitive,  and  virtually 
in  pawn  to  other  people.  It  is  money  placed  with 
you  in  advance  to  meet  coming  liabilities.  His  trading 
position,  in  other  respects,  may  be  perfectly  sound  and 
solid  ;  but  the  balance  at  his  credit  is  not  of  itself  con- 
clusive evidence  of  the  fact.  It  is,  indeed,  practicable  for 
a  clever  rogue  so  to  manage  affairs  as  to  be  insolvent  for 
years,  yet  all  the  while  maintain  a  respectable  balance  in 
his  bankers'  hands. 


LETTER    III. 

THE    TESTIMONY    OF   A    BALANCE-SHEET. 

He  that  can  tell  his  money  hath  arithmetic  enough:  he  is  a 
true  geometrician  can  measure  out  a  good  fortune  to  himself:  a 
perfect  astrologer ^  that  can  cast  the  rise  and  fall  of  others^  and 
mark  their  errant  notions  to  his  own  use. 

Anatomy  of  Melancholy. 

We  have  thus  far  taken  count  of  the  means  which 
are  afforded  us  by  hearsay  of  knowing  whom  to  trust. 
We  have  found  in  a  trader's  bank  account  a  useful  cor- 
rective of  information  concerning  him  from  without. 
In  cases  of  men  retired  from  business,  we  have  even 
found  it  an  impartial  witness  of  the  means  of  which  they 
stand  possessed. 

But  in  the  case  of  a  man  in  business  or  trade,  although 
his  bank  account  will  go  far  to  show  what  he  is  doing, 
it  will  not  show  what  he  is  *  worth.*  Given  his  exact 
position  at  a  certain  date,  his  account  will  indicate,  with 
some  degree  of  accuracy,  whether  from  that  date  on- 
wards he  is  improving  his  position  or  receding  from  it ; 
but  we  have  yet  to  learn,  in  actual  figures,  and  on 
authentic  evidence,  what  that  position  is. 

Even  where  an  informant,  in  whose  integrity  you  have 
implicit  reliance,  assures  you  that  he  knows  So-and-so 
to  be  worth  ;^  10,000,  because  he  has  seen  his  balance- 
sheet,  the  information  still  comes  to  you  at  second 
hand,  and,  as  we  shall  see  presently,  may  without  inten- 
tion be  seriously  misleading.  It  is  not  enough  to  be 
thus  assured,  however  truthfully,  that  a  man  has  so 
much  capital  in  his  business.  To  take  the  true  measure 
of  his  position,  you  must  know,  in  addition,  the  total 


LET.  III.]  The  Testimony  of  d  Balance-Sheet,         1 5 

amount  of  his  liabilities,  and  especially  the  nature  of  his 
assets;  because  the  liabilities  may  be  dangerously  in 
excess  of  his  capital  on  the  one  hand,  whilst  the  assets 
may  not  be  in  a  sufficiently  available  form  on  the 
other.  • 

A  man's  duly  certified  balance-sheet  is  the  one  re- 
liable voucher  of  his  actual  position  :  all  other  informa- 
tion that  we  can  gain  respecting  him  must  be  more  or 
less  at  second  hand  and  imperfect,  and  it  may  be 
delusive.  But  there  is  no  mistaking  the  figures  of  an 
honest  balance-sheet.  Only,  as  a  banker,  you  must  see 
and  weigh  them  for  yourself,  and  not  through  the  eyes 
and  understanding  of  somebody  else. 

When  a  man  comes  to  open  an  account  at  your  Bank, 
with  the  declared  purpose  of  borrowing  your  money  in 
one  form  or  another ;  a  reasonable  opening,  it  appears 
to  me,  presents  itself  for  the  suggestion,  that  an  exact 
knowledge  of  his  position  would  greatly  conduce  to  your 
mutual  comfort  in  the  years  to  come.  The  business 
connection  thus  commencing  may  be  of  lifelong  con- 
tinuance :  the  greater  need,  therefore,  that  there  should 
be  entire  confidence  between  you.  You  are  prepared 
to  accept  the  figures  of  his  balance-sheet  as  the  basis  of 
that  confidence,  and  if  he  is  wise  he  will  not  reject  your 
condition.  I  say,  if  he  is  wise,  because,  for  one  thing,  it 
is  certain  that  when  you  become  his  bankers,  you  will 
be  applied  to  from  time  to  time  for  information  as  to  his 
means  and  standing.  If  you  know  what  these  are,  from 
actual  figures,  you  can  reply  to  such  enquiries  with  a 
confidence  which  would  be  wanting,  had  you  to  rest 
your  opinion  upon  mere  hearsay  or  conjecture. 

It  is  one  thing  to  be  able  to  say  of  a  man  that  you 
know  his  means  to  be  ample  and  his  business  position 
undoubted,  and  quite  another  thing  to  be  able  only  to 
say  of  him  that  his  business  credit  is  unquestionable,  but 
that  you  have  no  actual  knowledge  of  his  means. 

Instead  of  a  balance-sheet,  the  intending  customer 
may  offer  to  furnish  you  with  referees ;  and  these  gentle- 
men may  be  entirely  respectable  and  assure  you  of  their 


1 6  The  Country  Banker,  [let.  m. 

unqualified  belief  in  his  respectability,  sufficiency  of 
capital,  and  so  forth ;  but  all  this  will  come  to  you 
second-hand,  and  from  parties  who  themselves  have 
it  only  on  report  They  may  be  in  a  position  even 
to  specify  the  sum  of  his  capital  to  a  pound  ;  but,  as 
we  shall  see,  this  is  of  itself  no  certain  guide  to  his 
actual  circumstances,  without  a  knowledge  of  the  sur- 
rounding figures. 

The  solid  man  of  business  who,  from  pride  or  pre- 
judice, hesitates  to  disclose  the  position  of  his  business 
affairs  to  the  confidential  ears  of  his  bankers,  damnifies 
himself  in  two  ways :  on  the  one  hand,  he  lessens  the 
full  measure  of  credit  which  he  might  obtain  from  them 
should  he  ever  desire  to  borrow ;  on  the  other,  he  fails 
to  furnish  them  with  data  whereon  to  speak  of  his 
position,  with  knowledge  and  decision,  in  reply  to 
enquiries  from  without.  A  man  lays  bare  the  secrets  of 
his  constitution  with  candour  to  his  physician,  lest,  in 
the  absence  of  an  exact  knowledge  of  the  case,  inapt 
remedies  might  be  applied.  For  a  like  reason,  a  man 
should  be  equally  frank  with  his  banker ;  otherwise,  in 
the  absence  of  a  complete  knowledge  of  his  position, 
you  may  ply  him  with  stimulants,  when  purging  would 
be  better ;  or  bleed  him  to  commercial  death,  when  a 
timely  stimulant  might  save  his  existence. 

There  are  those,  no  doubt,  who  have  cogent  reasons 
for  keeping  the  condition  of  their  affairs  a  sealed  book 
from  their  bankers ;  but  it  would  be  unsafe  nevertheless 
to  assume,  in  every  case,  that  because  a  man  refuses  to 
show  you  his  balance-sheet,  he  is  therefore  in  a  bad  way. 
There  are  people  of  secretive  habit,  who  would  regard 
with  dread  the  possibility  of  even  their  bankers  getting 
to  know,  not  how  poor,  but  how  rich  they  are.  But  the 
persons  who  take  this  peculiar  view  of  things  are  few  in 
number.  Men  in  large  and  active  business,  and  requir- 
ing at  times  large  banking  facilities,  see  the  wisdom  of 
laying  of  their  own  accord  their  actual  position  before 
their  bankers,  and  having  a  friendly  talk  over  the 
figures.     Every  man  should  know  that  by  this  course  he 


LIT.  1II.J  The  Testimony  of  a  Balance- Sheet,         1 7 

secures  to  himself  in  times  of  pressure  and  panic  a 
larger  measure  of  help,  should  he  require  it,  than  if  his 
capital,  however  ample  it  might  be,  were  still  an  unknown 
quantity  to  his  bankers. 

If  it  be  asked  on  what  ground  we  claim  for  banks  this 
intimate  and  exceptional  knowledge  of  other  people's 
affairs,  it  might  be  sufficient  to  reply  that  we  make  no 
exclusive  claim  to  the  information.  We  seek  it  for  our- 
selves, it  is  true,  but  we  have  no  desire  that  it  should  be 
withheld  from  everybody  else,  nor  from  a  single  person 
who  has  a  right  to  know  it.  The  information  thus 
acquired  you  have  constantly  to  impart  in  confidence  to 
other  banks,  for  the  guidance  of  their  customers  and 
themselves.  A  Banker's  Opinion  of  people,  in  business 
or  out  of  it,  is  in  daily  and  universal  request  throughout 
the  land  ;  and  as  the  reliance  placed  upon  that  opinion 
is  well-nigh  absolute,  it  had  needs  be  sound.  It  is  always 
as  sound  as  the  banker  can  make  it,  but  not  always  as 
reliable  as  he  could  wish  it  to  be. 

The  materials  on  which  he  has  to  form  a  judgment 
may,  as  we  have  seen,  be  imperfect.  His  customers 
may  be  shy  of  giving  him  assurance  of  their  actual 
position  in  the  only  authentic  way,  that  is,  by  the 
witness  of  their  balance-sheets.  He  is  thus  left  to  frame 
his  opinion,  partly  on  hearsay,  partly  on  the  testimony 
of  his  own  ledgers,  and  partly  on  his  own  observation. 
But  in  the  absence  of  a  genuine  balance-sheet,  an 
opinion  thus  constructed  must,  as  a  rule,  be  more  or 
less  conjectural. 

We  can  understand  the  smaller  class  of  country  trader 
having  a  coyness  about  showing  his  balance-sheet  to  his 
bankers,  because  he  may  never  have  made  one,  or  been 
instructed  how  to  draw  one  up,  and,  therefore,  has  no 
balance-sheet  to  show.  But  in  the  case  of  men  in  larger 
ways  of  business,  who  have  to  give  much  trust  them- 
selves, it  is  difficult  to  imagine  a  less  judicious  form  of 
reticence.  It  ought  to  be  obvious  to  them  that  if  every 
bank  knew  the  exact  position  of  every  customer,  on  the 
evidence  of  actual  figures*  it  would   be  known  every* 


1 8  The  Country  Banker,  [let.  hl 

where  with  certainty  whom  to  trust  and  whom  to  avoid  ; 
and  thus  our  annual  tale  of  bad  debts  in  trade,  now 
mounting  up  to  millions,  would,  beyond  question,  be 
largely  diminished.  It  would  not  exempt  us  from  loss 
consequent  on  unforeseen  vicissitudes  in  trade  or  com- 
merce ;  but  it  would  give  a  check  to  that  system  of 
olind  credit,  which  leads  us  all  round  into  a  class  of  bad 
debts,  the  more  irritating  because  they  could  to  a  large 
extent  be  rendered  avoidable. 

The  prudent  trader  will  balance  his  books,  if  not 
annually,  at  least  every  second  or  third  year,  on  the 
same  principle  that  the  commander  of  a  ship  takes 
soundings  at  times,  to  know  whereabouts  he  is.  There 
ought  to  be  no  excuse  for  the  trader  who  neglects  a  like 
precaution.  An  honest  man  will  desire  to  shorten  sail 
the  moment  he  finds  himself  in  difficulties.  He  will  thus 
round  the  cape  of  adversity  in  more  hopeful  trim  than  if 
he  drives  blindly  on  to  utter  wreck,  and  the  just  wrath 
of  his  creditors.  He  who  will  not  be  ruled  by  the 
rudder,  says  the  Cornish  proverb,  must  be  ruled  by  the 
rock. 

A  trader's  balance-sheet  has  this  supreme  recommen- 
dation to  a  banker :  it  does  not  rest  on  hearsay  or  con- 
jecture. It  gives  you  a  man's  exact  commercial  measure 
in  authentic  figures.  It  shews  you  what  liabilities  he  is 
under,  and  the  nature,  as  well  as  the  sum  of  his  assets, — 
an  essential  point ;  because,  as  we  shall  see,  a  man's 
capital  may  be  set  forth — and  honestly  set  forth — in 
thousands,  or  tens  of  thousands,  and  yet  consist  of 
materials  without  value  or  avail  from  a  banking  point 
of  view. 

The  printed  form  of  balance-sheet,  in  use  at  your 
Branch  for  many  years  past,  is  short,  simple,  and  com- 
prehensive. It  has  been  the  means  of  saving  your  Bank 
from  many  a  bad  debt ;  whilst  it  has  enabled  your 
authorities  to  judge  where  to  help,  as  well  as  to  with- 
hold, in  trying  times,  and  thus  avoid  the  indiscriminate 
rigours  of  panic 


Mil.]  The  Testimony  of  a  Balance-Sheet,         19 


Private 
Balance  Sheet  of 

AND 

Confidential. 

at                                            18 

Assets:— 
Book  Debts      .        *     -  L 
Stock  in  Trade      . 
Property           .        .     . 

Liabilities : — 
On  Acceptancet    . 
On  Open  Account    . 
Owing  to  Bank     . 
Other  LiabiliUes 

Total  . 
Surplus  or  Capital    . 

Total  .        .  I 

— . 

.£ 

The  book  debts  must  exclude  all  bad  and  doubtful 
ones.  The  stock-in-trade  may  be  taken,  according  to 
circumstances,  at  prime  cost  or  market  value.  The 
particulars  of  the  items  comprised  in  the  term  Pro- 
perty are  to  be  set  forth  at  length,  and  at  their  present 
values  on  the  back  of  the  document ;  whether  they  con- 
sist of  shares,  bonds,  or  land,  or  of  buildings,  machinery, 
plant,  furniture,  or  fixtures.  If  any  portion  of  the  pro- 
perty is  incumbered,  the  amount  and  particulars  of  the 
incumbrance  are  to  be  stated. 

The  assets  insured  against  fire,^and  in  what  offices,  are 
likewise  to  be  given — a  point  of  special  importance — 
because  there  are  many  persons,  both  in  trade  and  out 
of  it,  who,  rather  than  pay  eighteen-pence  a  year  on 
every  hundred  pounds'  worth  of  their  property,  will  run 
the  chance  of  their  goods  and  chattels  vanishing  any  day 
or  night  in  flame  and  smoke — thus  taking  the  hazard  of 
fire  at  the  tremendous  odds  of  1333  to  i.  It  is  un- 
necessary to  remark  that  where  stock-in-trade,  plant  and 
machinery,  furniture  and  pictures,  or  other  aliment  of  fire 
constitute  the  bulk  of  the  assets,  a  man  of  good  substance 
might  be  reduced  in  a  few  hours  to  insolvency  ;  and  an 
estate  worth  fifty  shillings  in  the  pound  to-day,  be  reduced 
to  five  shillings  in  the  pound  to-morrow. 

The  Society  of  Friends  have  a  custom,  whereby  the 
question  is  periodically  put  to  each  head  of  a  family 
in  their  communion —  Have  you  made  your  will  ?  If 
the    larger    community    of    English    creditors,   either 

*  And,  iu  time  of  war,  against  aircraft  risks.      q  ^ 


20  The  Country  Banker,  tix.  in. 

through  their  travellers  or  otherwise,  were  every  now 
and  then  to  put  the  question  to  their  debtors — Are  you 
insured  against  fire  ?  they  would  be  putting  a  question 
of  equal  urgency  and  moment  to  their  debtors  ;  whilst 
the  creditor  himself  might  thus  avoid  having  to  look 
for  his  debt  some  day  amongst  heaps  of  calcined  gtock- 
in-trade,  and  book  debts  to  which  the  flames  have  g^ven 
a  prompt  and  effectual  discharge. 

Next  to  the  Fire  Offices  themselves,  although  for  an 
opposite  reason,  bankers  have  the  deepest  interest  in 
the  insurance  of  all  descriptions  of  property  against  the 
ever-possible  fire-risk ;  because,  if  you  think  of  it,  no 
uninsured  property  can  be  destroyed  by  fire  but  some 
bank  must  be  more  or  less  directly  concerned  in  the 
catastrophe.  The  burnt-out  insolvent  may  not  bank 
with  you  or  even  with  any  other  bank,  but  his  accept- 
ances may  be  held  by  one  or  other  of  your  clients,  or,  if 
not  by  themselves,  by  persons  to  whom  they  give  trust 
and  who  may  be  brought  down  by  the  failure. 

A  man  may  have  responsibilities  outside  his  business, 
which  will  have  no  record  in  his  books.  He  may  be  a 
guarantor  for  other  people's  debts,  or  a  friendly  indorser 
of  other  men's  bills;  and  as  he  anticipates  no  trouble 
in  respect  of  them,  they  will  probably  find  no  place  in 
bis  balance-sheet ;  hence  the  heading.  Other  Liabilities,  in 
order  that  such  contingencies  may  not  be  left  out  of  sight. 

The  form  of  statement  under  review  is  sufficient  for  all 
purposes  ;  the  merest  tyro  in  book-keeping  could  fill  it 
up  ;  and  he  who  runs  might  read  it. 

When  you  are  assured,  therefore,  by  customers  whose 
balances  are  uniformly  on  the  wrong  side  of  your  ledger, 
that  they  cannot  fill  the  form  up,  not  knowing  how, 
you  will  be  apt  to  suspect  that  their  book-keeping  is  not 
what  it  ought  to  be,  or  that  they  have  good  reasons  for 
withholding  from  you  an  exact  knowledge  of  their  affairs. 

Let  us  now  see  what  the  three  balance-sheets  selected 
for  analysis  reveal  to  us.  They  each  show  the  same 
amount  of  capital,  and  the  same  indebtedness  to  the 


LET.  III.]  The  Testimony  of  a  Balance-Sheet,         2\ 


Bank  without  security  ;  but  in  other  respects  they  differ 
from  each  other  more  or  less  widely. 

The  first  statement  of  the  three,  that  of  Mr.  Daniel 
Hyde,  tanner,  gives  us  the  following  figures,  as  the 
summary  of  his  position  : — 


Assets : — 
Book  Debts  . 
Stock  in  Trade 
Property  (Free) 


;^6,000 

6,000 
3,000 

;^iS.ooo 


Liabilitiis  : — 
On  Acceptances    . 
On  Open  Account 
Owing  to  the  Bank 
Other  Liabilities 


Surplus  or  Capital 


I.OOft 

BiL 
£S>ooo 

;^IO,O00 


Mr.  Hyde,  then,  is  '  worth  '  ;^  10,000.  He  could  pay 
every  debt  he  owes,  and  still  have  that  amount  left  of 
his  own.  But  that  is  not  all:  he  could  discharge  his 
debts  at  any  moment  with  the  greatest  ease,  because 
four-fifths  of  his  assets  are  in  readily  convertible  form. 

To  put  it  differently,  Mr.  Hyde's  means  exceed  his 
liabilities  in  the  proportion  of  three  to  one.  He  could 
pay  his  creditors  sixty  shillings  in  the  pound.  Mr. 
Hyde  is  of  the  stuff  that  safe  bank  customers  are  made 
of.  ^  He  is  not  only  a  substantial  man,  but  his  substan- 
tiality is  as  available  as  it  is  ample.  It  is  not  such 
advances  as  the  overdraft  on  Mr.  Hyde*s  account  which 
disturb  a  Manager's  rest  in  the  night  watches 

We  come  next  to  the  balance-sheet  of  Messrs.  Railton 
&  Co.,  iron  merchants : — 


Book  Debts      . 
Stock  in  Trade    .         .     . 
Warehouse    and    Fixtures 
(Free)  ... 


24,000 
3,000 

;{^30.000 


Acceptances     . 
Due  on  Open  Account 
,,    to  Bankers 


;^l6,000 

3>ooo 
1,000 

;^20,000 


Surplus  or  Capital    .     .  j^io,ooo 
Liability  on  Bilk  discounted,  ;^iS,ooo. 

In  amount  of  capital  and  debt  to  the  Bank,  this 
balance-sheet  is  identical  with  the  preceding  one,  and 
the  assets  are  as  readily  convertible  ir^lo  money.    But 


22 


The  Country  Banker, 


(^LBT.  IIL 


beyond  these  points  all  resemblance  ceases.  Messrs. 
Railton  &  Co.  are  in  a  more  extended  position  than 
Mr.  Hyde.  Their  stock  in  hand  is  four  times  as  great 
as  his.  A  depreciation  of  lo  per  cent  in  its  value 
would  cause  them  a  loss  of  ;6"2400,  or  one-fourth  of  their 
capital ;  whereas  the  same  contingency  would  cause 
Mr.  Hyde  a  loss  of  only  a  seventeenth  part  of  his. 

Again,  Mr.  Hyde  has  no  bills  running.  He  never 
draws  a  bill.  He  is  therefore  under  no  liability  to  you  on 
that  score.  But  Messrs.  Railton  arc  responsible  to  you 
on  their  indorsements  to  the  extent  of  i;  15,000.  What 
amount  of  risk  these  may  involve  will  depend  upon  the 
quality  of  the  bills,  and  the  ability  of  the  acceptors 
to  meet  them  ;  but  if  we  put  it  roughly  at  ;^iooo,  for 
the  sake  of  argument,  that  must  be  regarded  as  so  much 
latent  overdraft.  Messrs.  Railton  therefore  will  virtually 
be  liable  to  you  for  ;^2000  in  all ;  nevertheless,  other 
things  being  equal,  they  would  still  have  resources  suffi- 
cient to  pay  their  debt  to  you  four  times  over. 

But  other  things  might  not  be  equal.  A  not  un- 
exampled fall  in  the  price  of  iron  might,  as  we  have 
seen,  sweep  away  a  fourth  of  Messrs.  Railton's  capital ; 
whereas  an  equal  fall  in  the  price  of  leather  would  hardly 
make  an  impression  on  Mr.  Hyde's.  It  has  to  be 
observed,  moreover,  that  whilst  his  capital  is  twice  the 
amount  of  his  indebtedness,  their  indebtedness  is  twice 
the  amount  of  their  capital.  Not  that  their  position,  as 
it  now  stands,  involves  risk  to  you  or  to  anyone  :  but  it 
is  less  solid,  less  invulnerable  than  Mr.  Hyde's,  and  more 
subject  to  vital  change  in  stormy  times. 

We  now  come  to  the  balance-sheet  of  Mr.  Abel 
Trowell,  builder : — 


Book  Debts       .        .        .  £l^ooo 
Stock,    Buildings  in   pro- 
gress, &c.        .         .    .      S»ooo 
Property  .     .  ;^30,cxx> 

Less  Mortgages  .     20,000 

10,000 


;^l8,000 


Acceptances 
Due  on  Open  Account 
.,   to  Bank 


;^8.ooo 
Surplus  or  Capital    .    .  ;^io,ooo 


LET.  III.]   The  Testimony  of  a  Balance-Skeet,         23 

Equally  with  the  two  preceding  statements,  Mr. 
Trowell's  shews  a  capital  of  £  10,000.  His  statement  has 
likewise  another  coincidence — he  is  owing  you  ;^iooo 
without  security.  But  when  you  look  t^-t  the  nature  of 
the  assets  out  of  which  your  advance  is  to  be  repaid,  you 
may  well  have  intermittent  qualms  as  to  the  safety  of 
the  account. 

Mr.  Trowell,  you  report,  is  nearly  completing  a  block 
of  houses  on  his  own  account,  and,  when  finished,  he  is 
to  raise  a  sum  on  mortgage  of  the  pioperty,  which  will 
enable  him  to  pay  you  off,  and  place  a  good  balance  to 
his  credit  over  and  above.  When  this  happy  change 
takes  place  in  the  aspect  of  Mr.  Trowell's  account,  you 
will  no  doubt  think  twice  before  you  allow  the  balance 
to  go  to  the  debit  side  again  without  security.  His  pro- 
perty is  already  mortgaged  to  the  hilt — that  is  to  say,  he 
has  raised  all  he  can  upon  it.  As  far,  therefore,  as  his 
financial  requirements  are  concerned,  his  property  is 
entirely  unavailable.  Whether  there  be  any  value  in  the 
equity,  will  only  be  known  when  the  property  comes 
to  be  realised;  but,  in  the  meantime,  the  ;^  10,000  set 
forth  by  Trowell  as  the  value  of  this  asset  will  be  of  as 
little  use  as  an  equal  number  of  brickbats  in  payment  of 
his  acceptances,  or  his  men's  wages,  or  his  debt  to  you, 
or  to  other  people.  This  item  must,  therefore,  be  struck 
out  of  his  available  assets.  There  will  remain  ;^3000  in 
book  debts,  and  a  dubious  asset  of  ;^5000,  consisting  of 
materials  and  buildings  in  progress ;  making  together 
;^8ooo  to  meet  active  liabilities  of  the  same  amount 

It  is,  therefore,  manifest  that  if  Mr.  Trowell  should  fail 
to  receive  any  expected  instalment  under  his  building 
contracts,  or  any  sum  promised  on  mortgage,  he  may  find 
himself  in  difficulties  any  day,  even  as  to  the  payment  of 
his  men's  wages,  to  say  nothing  of  the  £  1000  he  is  in 
debt  to  you,  or  the  £7000  he  is  in  debt  to  other  people. 

You  have  also  to  take  into  account  that  Mr.  Trowell  has 
to  find  something  like  ;^iooo  a  year  to  meet  the  interest 
on  his  mortgages  ;  and  that  this  interest,  as  it  falls  due, 
must  be  promptly  paid,  under  pain  of  sale  or  foreclosure, 


2  4  Th^  Country  Banker,  [lxt.  m. 

however  well  or  ill  let  his  property  may  be;  so  that 
trouble  might  overtake  him  in  this  direction  any  day. 
On  the  whole,  it  would  be  difficult  to  imagine  a  more 
noteworthy  example  of  a  man  nominally  worth  ;^  10,000, 
but  financially  insolvent,  from  a  banker^s  pomt  of  view. 

In  your  private  valuation  of  every  trader's  assets,  as 
set  forth  in  his  balance-sheet,  you  must  take  into  account 
the  possibility  of  his  failure,  and  theejffect  of  that  misfor- 
tune upon  their  value. 

The  stock  and  book  debts  of  Messrs.  Railton  &  Co., 
for  example,  would  suffer  little  or  no  depreciation  on 
being  realised ;  but  the  realisation  of  the  stock  and  book 
debts  of  a  country  mercer  would  have  a  widely  different 
result.  The  stock  may  be  honestly  set  forth  in  the 
balance-sheet  at  cost  price,  but  much  of  it  may  have 
gone  out  of  fashion,  and  become  unsaleable,  except  at  a 
ruinous  discount ;  so  that,  between  the  nominal  value  of 
a  draper's  stock-in-trade  and  what  it  will  fetch  at  auction, 
you  must  provide  for  a  very  wide  discrepancy.  You  will 
likewise  have  to  make  a  large  abatement  from  the  sum  of 
his  book  debts.  His  principal  debtors  will  consist  of  traders 
smaller  than  himself,  the  majority  of  whom  will  break 
when  he  breaks  ;  and  as  regards  the  residue  of  his  debts, 
consisting  of  small  sums  owing  here  and  there  over  a  wide 
district,  the  bulk  of  them  will  be  absorbed  in  the  cost  of 
collection.  It  has  also  to  be  considered,  that  a  trader  is 
not  so  rigorous  in  choosing  whom  he  will  trust,  as  you  are 
bound  to  be,  and  that  he  will  regard  many  a  debt  as 
good  which  you  would  look  upon  as  more  than  doubtful 
It  is  to  be  feared,  therefore,  that,  as  a  rule,  he  fails  to 
purge  his  balance-sheet  sufficiently  of  these ;  so  that 
altogether  the  realisation  of  a  trader's  book  debts  is  a 
disappointing  and  disastrous  process. 

The  assets  of  an  agriculturist  have  likewise  to  be 
taken  with  a  considerable  margin  for  contingencies,  be- 
cause his  growing  crops  may  be  blighted  by  unfavour- 
able weather,  or  a  murrain  may  make  havoc  in  his  sheep- 
folds,  or  the  foot  and  mouth  disease  decimate  his  cattle. 


UPT.  iiL    The  Testimony  of  a  Balance-Sheet         25 

Again,  when  shares  constitute  a  portion  of  the  assets, 
you  have  to  take  note  of  their  quality,  and  their  liability 
to  change  in  value.  A  customer  whose  holding  of  shares 
consists  of  first-class  English  railway  stocks,  evidently 
holds  a  security  more  solid  in  value  and  stable  in  price 
than  if  his  shares  were  in  ships  at  sea,  or  in  '  worki,'  or 
mines,  or  in  the  uncovcnanted  scrip  which  is  traAcked 
in  beyond  the  pale  of  Capel  Court.  It  is  of  conse- 
quence, moreover,  to  note  whether  the  shares  invohre  a 
liability  to  further  calls,  and,  if  so,  whether  the  liability 
is  of  definite  amount.  If  unlimited,  it  will  matter  less 
what  the  nature  of  his  other  assets  may  be,  because  this 
form  of  liability  may  some  day  sweep  them  bodily  away. 

There  are  likewise  assets  of  a  perishable  nature,  and 
there  are  those  which  a  caprice  in  taste  may  render  weU- 
nigh  valueless :  and  it  is  certain  that  there  are  more 
descriptions  of  property  liable  to  waste  and  depreciation, 
than  to  improvement  in  condition  or  enhancement  in 
price. 

It  comes  in  brief  to  this — that  your  estimate  of  a 
man's  position  must  rest  not  merely  on  the  present,  but 
on  the  prospective  value  of  his  assets  and  property  ;  so 
far  as  that  value  may  be  affected  by  the  special  causes 
of  change  to  which  each  form  of  asset  may  be  liable. 

You  raise  the  point — ^whether  a  bank  known  to 
place  reliance  on  the  balance-sheets  of  traders,  as  a 
basis  for  advances  without  security,  would  not  ex- 
pose itself  to  the  arts  of  any  schemer  who  chose  to 
victimize  it  by  a  deliberate  falsification  of  his  position  ? 
No  doubt  any  one  who  has  the  courage  to  play  the 
rog^e  may  construct  a  balance-sheet  which  shall  induce 
you  to  treat  him  as  a  man  of  substance,  when  in  fact  he  is 
a  man  of  straw,  and  no  better  than  a  sharper.  But  as 
he  might  equally  persuade  you  of  his  solvency  by  word  of 
mouth,  his  doing  so  by  means  of  a  balance-sheet  will 
not  at  all  events  place  you  in  a  worse  position  ;  but  it 
will  place  him  at  a  perceptible  disadvantage.  He  will 
have  put  his  name  to  a  statement,  on  the  shewing  of 


26  The  Country  Banker,  [lkt.  m 

which  you  have  lent  him  money.  He  has  put  his 
liabilities  down  at  perhaps  half  their  actual  amount,  and 
his  assets  at  twice  their  actual  value.  The  statement  is, 
therefore,  false  and  fraudulent.  Your  cunning  knave 
has  been  too  clever  by  half.  He  has  been  obtaining 
money  under  false  pretences,  and  is  liable  to  the  con- 
sequences of  that  offence,  certified  as  it  happens  to  be 
under  his  own  hand.  From  mere  verbal  lying  and  mis- 
representation he  might  wriggle  out ;  but  not  from  a 
balance-sheet  proved  to  be  false,  bearing  his  own  signa- 
ture, and  used  for  a  fraudulent  purpose.  So  far  there- 
fore from  the  unprincipled  amongst  the  trading  com- 
munity seeking  to  hocus  you  in  this  way,  they  are  more 
likely  to  shun  a  bank  which  exposed  them  to  this 
dangerous  formality.  The  commercial  bird  of  prey  will 
not  scruple  to  attack  you  whenever  you  give  him  the 
chance ;  but  not  in  this  way.  He  will  avoid  what  he 
will  designate  the  '  balance-sheet  dodge,'  as  the  ex- 
perienced rat  will  avoid  an  obvious  trap. 

The  probability  of  your  being  decoyed  into  loss  by  the 
lure  of  a  spurious  balance-sheet  is  so  remote  as  to  be 
scarce  worthy  of  serious  thought.  But  even,  if  out  of 
every  hundred  of  these  statements  one  should  prove 
false — that  would  not  amount  to  a  reason  for  refusing  all 
belief  in  the  other  ninety-nine,  and  therefore  dispensing 
with  their  use 


LETTER    IV. 

THE   CREDIT    OF    LIMITED    COMPANIES. 

Jarvis.  He  says  he  has  been  at  a  great  deal  of  trouble  to  get 
back  the  money  you  borrowed. 

HoNEYWOOD.  That  I  dotCt  know :  but  Tm  sure  we  were  at 
a  great  deal  of  trouble  in  getting  him  to  lend  it. 

The  Good-natured  Man. 

A  LIMITED  company,  the  capital  of  which  is  wholly 
paid  up,  is  virtually  in  the  position  of  an  individual  who 
has  put  his  all  into  his  business.  You  cannot  get  any- 
thing more  out  of  him,  nor  out  of  the  company,  under 
any  known  form  or  force  of  pressure. 

Let  the  three  balance-sheets  which  we  have  just  ana- 
lysed be  those  of  three  limited  companies,  with  their 
capitals  paid  up  in  full :  and  the  same  rules  of  analysis 
will  apply.  What  is  true  of  the  balance-sheet  of  Daniel 
Hyde  would  be  equally  true  if  it  were  that  of  Daniel 
Hyde  &  Co.,  Limited ;  and  so  likewise  of  the  other  two. 
The  fact  that  in  one  case  the  capital  has  been  paid  up 
by  a  number  of  people,  and  in  the  other  by  a  single 
person,  does  not  of  itself  in  any  way  affect  the  position 
of  things.  Daniel  Hyde  &  Co.,  Limited,  so  long  as  the 
balance-sheet  shall  continue  item  for  item  what  it  is, 
would  be  entitled  to  the  same  amount  of  credit  as 
Daniel  Hyde  himself. 

But  the  balance-sheets  of  trading  companies  of  limited 
liability  are  not,  as  a  rule,  of  equal  financial  strength 
with  that  of  Daniel  Hyde,  and  they  usually  differ  from 
it  in  another  important  feature;   that  is  to  say,  the 


28 


The  Comitry  Banker. 


[let.  it. 


majority  of  companies  do  not  call  their  capitals  up  in 
full,  but  leave  portions  of  them  uncalled.^  Your  clients, 
the  Imperial  Slab  Co.,  do  so,  and  their  last  balance- 
sheet  gives  us  the  figures  following  : — 


Asuts: — 

Cost  of  Qu»rrjr 
Goodwill . 
Book  Debts . 
Stock 


;Cio,ooo 
5,000 
3»ooo 

3,000 

;^20,000 


LimhiiiHgs : — 
Due  for  Purchase 

Money        .  ;^9,ooo 
„    cm  Mertgage 

Debenture .     5,000 
„  to  Bank  1,000 


15,000 


Suri)lus,  or  Capital  Paid-up  5,000 
Capital  still  to  call       .     .    5,000 

;^I0,000 


The  gross  assets  are  ;{J'20,cx)0 :  but  to  find  the  amount 
of  these  which  are  available  to  pay  the  debts  of  the 
company,  you  must  strike  off  first  the  £SOOO  for  good- 
will ;  a  nebulous  form  of  asset  which  may  be  worth 
nothing.  At  the  best,  it  is  merely  an  asset  in  supposi- 
tion— a  charge  upon  the  future  profits  of  the  company, 
if  any.  There  is  no  other  fund  out  of  which  it  can  be 
recouped  to  the  shareholders. 

From  the  gross  assets,  thus  reduced  to  ;^  1 5,000,  you 
have  next  to  strike  off  the  cost  of  the  property  ;  because 
you  cannot  pay  the  purchase-money,  or  the  debentures, 
or  the  Bank  balance,  with  the  lease  and  plant  of  a 
quarry,  however  valuable  they  may  be.  They  will 
first  have  to  be  turned  into  money,  and  that  may  not  be 
the  work  of  a  day  nor  of  many  days.  The  available 
trading  assets  of  the  company  are  thus  reduced  to 
;^5000,  to  meet  liabilities  more  or  less  deferred,  but 
which  have  to  be  met  some  time,  amounting  to  three 
times  that  sum.  The  liabilities,  in  fact,  exceed  the 
immediately  available  assets  by  ^^  10,000. 

To  provide  for  this  deficiency,  the  company,  as  a  first 

step,  will  have  to  call  up  the  remaining  /"SOOO  of  its 

subscribed  capital,  because  it  has  already  exhausted  its 

legal  power  of  borrowing  on  debenture.     Whereupon 

^  This  is  no  longer  tht  cast. 


LIT.  iv.l    The  Credit  of  Limited  Companies,         29 

the  point  which  first  presents  itself  for  inquiry  is  this, — 
Are  the  shareholders  good  for  the  money  ?  To  solve 
the  question,  with  even  a  distant  approach  to  accuracy, 
you  will  have  to  procure  a  list  of  their  names  and  places 
of  abode,  together  with  the  number  of  shares  held  by 
each.  You  will  then  have  to  enter  into  correspondence 
with  banks  in  all  parts  of  the  country,  to  ascertain  the 
ability  of  each  shareholder  to  pay  his  quota  of  the  call ; 
a  process  not  always  rewarded  with  conclusive  informa- 
tion, but  undeniably  troublesome.  Moreover,  there  may 
be  able  but  unwilling  contributories,  who,  rather  than  pay 
up,  may  force  the  concern  into  liquidation  ;  in  which 
event,  the  exact  date  for  the  repayment  of  your  advance 
will  become,  to  say  the  least,  obscure. 

And  there  is  a  worse  danger  than  this  possible.  The 
whole  of  the  i^SOOO  may  be  already  under  notice  of 
call,  and  mortgaged  to  some  other  bank  or  finance 
company,  without  your  knowledge ;  and  such  a  mort- 
gage, as  the  law  now  stands,  would  hold  good  as  against 
you  and  all  other  outside  creditors.^ 

But  let  us  assume  that  the  uncalled  capital  is  not 
mortgaged  in  the  case  of  the  Imperial  Slab  Company, 
and  that  the  liquidation  is  a  friendly  and  inexpensive 
one.  Let  us  further  assume  that  the  call  and  the 
trading  assets,  amounting  together  to  £  10,000,  on  being 
realized,  shall  yield  within  ten  per  cent,  of  their  nominal 
amount ;  although  the  likelihood  of  such  a  result  makes 

*  The  law  has  been  altered  in  this  respect.  The  Companies  (Con- 
solidation) Act,  1908  (section  93),  lays  down  that  "a  mortgage  or 
charge  on  uncalled  share  capital  of  a  company  shall,  so  far  as  any 
security  on  the  company's  property  or  undertaking  is  thereby  con- 
ferred, be  void  against  the  liquidator  and  any  creditor  of  the  com- 
pany, unless  the  prescribed  particulars  of  the  mortgage  or  charge, 
together  with  the  instrument  (if  any)  by  which  the  mortgage  or 
charge  is  created  or  evidenced,  are  delivered  to  or  received  by  the 
Registrar  of  Companies  for  registration  .  .  .  within  21  days  after 
the  date  of  its  creation."  .  .  .  It  is  now,  therefore,  a  simple  matter 
for  the  banker,  before  advancing  against  uncalled  capital,  to  ascertain, 
by  reference  to  the  register  which  the  Registrar  of  Companies  it 
bound  to  keep,  whether  any  such  charge  has  already  been  given  by 
the  company  which  is  applying  for  the  loan. 


30  The  Country  Banker,  [let.  ir. 

a  severe  demand   on    one's  doctrine  of   probabilities. 
There  is,  therefore,  £<^ooo  in  Court  to  deal  with. 

But  the  whole  of  this  will  be  required  to  pay  the 
balance  of  the  purchase-money,  for  which  the  vendor  has 
no  doubt  a  first  lien.  It  is  not  likely  he  would  have 
parted  with  the  property  on  any  other  condition.  There 
is  still,  it  is  true,  the  property  itself  to  fall  back  upon ; 
but  when  you  come  to  realize  a  quarry,  or  any  other 
description  of  property,  which  can  only  be  worked  at  a 
loss,  the  price  originally  paid  for  it  ceases  to  be  a  factor 
in  any  reliable  estimate  of  its  worth.  Moreover,  what- 
ever may  be  the  result  of  a  sale,  the  debenture  holders 
have  a  prior  claim  to  yours  on  the  money.  It  is  con- 
ceivable that  the  sale  money  may  suffice  to  satisfy  their 
claims,  but  the  probabilities  with  one  accord  point  all 
the  other  way.  In  any  event,  they  have  no  interest  in 
the  property  fetching  a  single  farthing  beyond  what  will 
suffice  to  pay  themselves,  and  will  only  be  too  thankful, 
when  the  biddings  reach  that  point,  to  see  the  hammer 
fall  without  more  ado.  In  any  probable  event,  therefore, 
you  will  be  left  out  in  the  cold,  without  a  penny  piece 
towards  your  debt,  or  any  one  to  proceed  against  for  a 
farthing  of  it. 

In  thus  dealing  with  this  balance-sheet  of  a  limited 
company,  we  have  taken  everything  at  the  worst  that 
could  happen  to  its  shareholders  or  the  Bank ;  unless, 
indeed,  the  Bank  were  to  buy  the  quarry  in,  and  take 
to  working  it  on  its  own  account.  The  future  of  its 
advance  from  that  moment  would  pass  beyond  the  reach 
of  human  estimate. 

It  is  only  fair  to  admit  that  the  Imperial  Slab  Co. 
is  one  of  an  exceptional  class.  In  ratio  of  number, 
there  are  probably  as  many  sound  limited  trading 
companies  as  there  are  sound  private  firms,  or  individual 
traders.  Nevertheless,  the  difficulties,  compUcations,  and 
risks  which  we  have  been  reviewing,  should  be  present 
to  your  mind,  whenever  you  seek  to  measure  the  trust- 
worthiness of  any  limited  company  by  the  shewing  of 
its  balance-sheet 


LET.  IT.]  The  Credit  of  Limited  Companies,        31 

There  is  yet  another  risk  which  you  have  to  consider 
when  you  make  advances  to  a  limited  company,  which 
is  this, — its  articles  of  association  may  not  give  it  the 
power  to  borrow  from  a  bank  :  but  even  if  they  do,  the 
exercise  of  the  power  may  be  hedged  round  with  difficult 
forms  of  legal  observance,  of  the  due  performance  of 
which  you  can  never  be  perfectly  assured.  Even  with 
the  exercise  of  the  greatest  caution,  you  may  find  some 
day  that  you  have  made  an  advance  to  a  limited  concern, 
for  which  neither  the  company  itself,  nor  its  Directors,  its 
Manager,  or  any  one  else  is  legally  responsible. 

Except,  therefore,  where  the  undertaking  is  one  of 
icknowledged  success,  with  ample  capital  and  imme- 
iiately  available  trade  assets,  sufficient  at  all  times  to 
iischarge  its  trade  liabilities,  you  require  the  personal 
4^uarantee  of  its  Directors,  when  you  make  advances  to  a 
limited  company.  These  gentlemen  will  know  whether 
such  advances  are  within  the  scope  and  limit  of  their 
borrowing  powers,  and  what  resources  will  be  at  hand 
to  meet  the  advances  when  due.  They  will  always  be 
on  the  right  side  of  the  hedge,  because  they  can  protect 
themselves ;  but,  without  their  guarantee,  you  may  some 
day  find  yourself  on  the  wrong  side  of  it,  with  no  debtor 
in  tangible  form  betwixt  you  and  the  horizon.  In  all 
other  cases,  there  is  usually  something  to  go  upon,  or 
somebody  to  go  against,  and  a  residuum  and  dividend 
of  some  sort.  But  in  the  case  of  a  concern  like  the 
Imperial  Slab  Co.,  you  find  yourself  in  the  condition  of 
an  exhausted  receiver,  with  the  vacuum  for  your  debt 


LETTER    V. 

COVER    FOR    DEBT. 

Nor  do  we  let  fall  our  pen  upon  discouragement  of  contradic- 
tion^ unbeliefs  and  difficulty  of  dissuasion  from  radicated  beliefs 
and  points  of  high  prescription :  although  we  are  very  sensible 
how  hardly  teaching  years  do  learn,  what  roots  old  age  contracteth 
into  errors y  and  such  as  are  but  acorns  in  our  younger  browSy 
grow  oaks  in  our  elder  heads  and  become  inflexible  unto  the 
powerfullest  arm  of  reason.  Sir  Thomas  Browne. 

r 

We  have  now  explored  the  various  paths  of  inquiry 
which  are  open  to  a  banker  when  he  seeks  to  ascertain 
what  a  man  is  worth  and  what  this  worth  consists  of. 
You  have  to  rely  for  this  knowledge  on  hearsay,  or  on 
the  shewing  of  a  man's  bank  account,  or  on  the  witness 
of  his  balance-sheet.  On  one  or  other  of  these  sources 
of  information  you  have  to  place  your  reliance,  when 
you  seek  to  measure  the  responsibility  of  any  individual, 
as  a  borrower  on  his  own  account,  or  as  a  surety  for  others. 

But  although  the  information  thus  obtainable,  as  to 
the  sum  and  substance  of  a  man's  worth,  may  be  exact 
and  true  at  the  time,  it  may  not  continue  to  be  true. 
An  advance  may  be  safe  at  the  time  it  is  made,  but  the 
circumstances  of  the  borrower  may  readily  change  for 
the  worse  without  your  knowledge.  It  is  true,  that  in 
the  great  majority  of  cases  you  will  have  the  means  of 
detecting  this  change,  without  further  guidance  than  the 
shewing  of  a  man's  bank  account ;  but  tliere  remains 
this  difficulty — the  knowledge  may  come  too  late.  You 
may  come  to  the  conclusion  that  a  man's  affairs  are 
going  the  wrong  way,  and  call  his  account  up  ;  but  his 


i.«Tvv.]  Cover  for  Debt,  33 

affairs  may  by  that  time  have  drifted  so  far  into 
insolvency  that  your  call  cannot  be  responded  to.  The 
knowledge  that  a  man's  circumstances  are  becoming 
involved  will  doubtless  have  this  value — it  will  put  a 
stop  to  any  increase  in  your  advance  to  him ;  and 
in  many  cases  the  knowledge  will  come  to  you  in 
time  to  enable  you  with  due  diligence  to  recall  and 
recover  your  existing  advance  :  but,  as  I  have  just  said, 
the  knowledge  will  not  be  available  in  every  case;  it 
will  not  always  come  in  time. 

A  man  may  commence  business  with  ample  capital, 
conduct  his  bank  account  with  the  strictest  regularity, 
never  exceed  by  a  pound  the  limit  of  overdraft  allowed 
him  without  security,  and  yet,  after  a  few  years,  shall 
make  a  bad  failure,  to  the  dismay  of  his  bankers,  and 
the  surprise  of  all.  He  has  been  speculating  secretly  in 
shares,  or  produce,  or  something  else,  and  has  managed 
to  keep  all  trace  of  such  transactions  out  of  his  bank 
account,  and  therefore  from  the  knowledge  of  his 
bankers.  Whilst  they  are  serenely  reliant  on  the  splendid 
figures  of  his  latest  balance-sheet,  one  asset  after  another 
has  furtively  melted  away  and  disappeared  in  the  un- 
known depths  of  his  *  differences.* 

The  case  is  fortunately  exceptional.  For  one  man 
who  suddenly  abandons  a  sound  and  legitimate  busi- 
ness and  a  respectable  position  in  life,  to  cast  his  all 
into  the  vortex  of  speculation,  there  are  tens  of 
thousands  who  are  never  afflicted  with  this  form  of 
insanity ;  but  although  such  cases  are  abnormal,  they 
cannot  be  left  out  of  count,  if  you  are  to  reckon  with 
and  guard  yourself  against  every  contingency. 

Our  banking  losses  are  always  exceptional.  We 
never  make  an  advance  which  we  expect  will  become  a 
loss.  It  is  always,  therefore,  the  unexpected  that 
happens  when  a  bank  makes  a  bad  debt ;  and  it  arises 
invariably  at  some  point  which  has  been  left  exposed, — 
on  some  account  which  has  been  left  unguarded  by 
security.  And  the  only  way  effectually  to  safeguard 
this,  the  weakest  point  of  country  banking,  is  never  to 


34  1"^  Country  Banker,  [lm.  v. 

make  an  advance  to  any  one,  except  on  security 
of  approved  quality  and  adequate  value. 

You  act  upon  this  principle  when  you  employ  the 
Bank's  money  in  the  discount  of  bills.  You  do  not  part 
with  it  on  the  individual  security  of  the  last  indorser. 
He  virtually  provides  you  with  bail,  in  the  persons  of 
the  acceptor  and  other  obligants  on  the  bill. 

This  being  so,  when  you  employ  your  money  in  dis- 
counts, it  does  not  appear  on  what  ground  you  should 
ever  lend  it  on  overdrawn  account  without  any  security 
whatever.  On  the  contrary,  the  need  for  covej-  is  greater: 
because  in  the  case  of  a  bill  there  is  actual  value  behind 
it,  in  addition  to  the  personal  security  of  the  obligants  : 
whereas  an  overdraft  need  not  necessarily  rest  on  any 
value  at  all  beyond  the  responsibility  of  the  borrower 
himself.  Moreover,  the  bill  has  a  brief  and  definite  term 
to  run.  The  circumstances  of  the  parties  to  it  will  only 
have  some  three  months  in  which  to  change  for  the  worse, 
before  it  comes  to  maturity.  But  money  advanced  on 
overdrawn  account  without  security  to  an  agreed-on 
limit  is  not  usually  subject  to  such  prompt  repayment. 
The  debtor  on  this  form  of  advance  has  therefore  a 
longer  time  for  getting  into  trouble,  if  his  affairs  should 
tend  in  that  direction. 

It  may  be  unpleasant  to  have  to  refuse  an  advance  to 
a  gentleman  of  good  family  but  restricted  means,  with 
whom  you  are  on  terms  of  friendly  intercourse.  But  in 
banking,  as  we  had  occasion  to  remark  at  the  outset,  the 
scope  for  sentiment  is  limited.  The  feelings  need  no 
more  be  touched  by  refusing  to  lend  a  gentleman 
money  without  security,  than  by  refusing  to  make  a  bet, 
or  go  a  cruise,  or  make  a  tour  with  him,  or  join  him 
in  a  speculation.  It  may  be  an  amiable  weakness  to 
think  otherwise ;  but  if  a  bad  debt  is  to  be  the  fruit 
of  this  amiability,  the  sooner  your  disposition  is  soured 
the  better. 

You  admit  the  principle  of  requiring  cover  to  be 
sound,  but  you  hold  that  it  would  be  unwise  to  enforce 
it  vx  every  instance,  unless  you  are  prepared  to  see  some 


LET.  v.]  Cover  for  Debt.  35 

of  your  most  valued  accounts  going  over  to  your  neigh- 
bours, The  Old  Bank,  Messrs.  Yewtrey  &  Co. 

You  are  assured  that  they  seldom  act  upon  the  rule, 
and  act  upon  it  in  a  liberal  spirit  when  they  act  at  all. 
But  if  this  assurance  has  come  to  you  through  customers 
of  your  own,  to  whom  a  similar  laxity  on  your  part 
would  be  an  obvious  convenience,  you  will  no  doubt 
entertain  it  with  a  proper  infusion  of  distrust.  In  the 
ordinary  course  of  your  business,  you  must  be  prepared 
frequently  to  hear,  from  one  quarter  or  another,  that 
your  terms  are  less  liberal,  and  your  conditions  more 
stringent  than  those  of  other  banks.  In  almost  every  in- 
stance the  reproach,  when  inquired  into,  will  prove  to  be 
groundless.  In  some  cases  it  will  have  arisen  from  mis- 
apprehension ;  in  others  from  idle  talk ;  and  in  some 
few  from  deliberate  mis-statement  Nevertheless,  a  rigid 
adherence  to  the  rule  in  every  case,  would,  no  doubt, 
result  in  a  certain  loss  of  business,  which  no  bank  is 
willing  to  face,  even  although  the  loss  should  consist 
exclusively  of  a  batch  of  overdrawn  accounts  uncovered 
by  security. 

As  banking  usage  in  the  provinces  prevails  at  present, 
therefore,  you  feel  obliged  continually  to  depart  from  the 
only  rule  which  would  render  your  advances  safe  under 
all  circumstances.  You  feel  constrained,  because  other 
banks  do  so,  to  depart  from  a  principle  which  would 
make  each  of  your  overdrafts  secure,  whatever  reverse  of 
fortune  should  overwhelm  the  debtor  himself. 

You  quote  in  reply  the  dictum  of  an  old  writer :  *  He 
ought  to  be  well  mounted  who  is  for  leaping  the  hedges 
of  custom.'  That  is  true ;  but  the  fact  that  you  are 
constantly  forced  by  custom  out  of  the  safe  lines  of  bank- 
ing, affords  no  reason  why  we  should  not  discuss  the 
usage  on  its  merits.  It  may  be  that  its  unsoundness 
and  danger,  if  made  manifest  to  all,  might  lead  to  its 
gradual  limitation,  and  in  time  to  its  final  abandonment. 

Let  it  be  admitted  then,  as  it  may  be,  without  con- 
troversy, that  there  are  people  in  Oxborough  who  would 

B  3 


36  The  Country  Banker.  [lct.  v. 

be  safe  beyond  all  doubt  for  advances  without  security  : 
nevertheless,  it  is  equally  beyond  cavil  that  no  one  is  as 
safe  without  security  as  with  it.  If  every  advance  on 
your  books  were  covered  by  adequate  security,  it  is  clear 
that  in  respect  of  such  advances  you  would  stand  abso- 
lutely exempt  from  the  risk  of  loss  ;  but  the  moment 
you  begin  to  make  exceptions  to  the  rule,  by  granting 
advances  to  this  client  or  to  that,  without  security,  you 
leave  the  solid  ground  of  safety  for  the  treacherous 
swamps  of  banking  risk. 

Bear  in  mind  that  every  advance  which  you  make 
without  security  will  rest  for  its  safety  on  the  unerring 
accuracy  of  your  own  judgment  as  to  the  means  and 
character  of  the  borrower.  But  in  such  cases  is  your 
judgment — is  any  man's — infallible  ?  Is  it  equal  in  any 
case  to  good  collateral  security  ? 

In  making  your  selection  and  choice  of  the  trust- 
worthy amongst  your  customers — in  separating  the 
sheep  from  the  goats — your  experience  will  be  more 
than  human,  if  you  do  not  take  to  your  bosom  a  black 
sheep  now  and  then.  And  the  irony  of  the  thing  will 
lie  in  this — your  losses,  when  they  do  happen,  will  come 
to  you  from  your  chosen  ones — from  those  in  whom  you 
have  placed  your  business  faith,  and  to  whom  unhap 
pily  you  have  lent  the  Bank's  money  without  security. 

Let  us  suppose  that  you  have  advanced  ;^iooo  for 
three  months  without  security  to  a  client  believed  at 
the  time  by  everybody,  yourself  included,  to  be  a  man 
of  substance  and  undoubted  for  the  amount  Let  us 
further  suppose  that  this  estimate  of  his  means  turns  out 
to  have  been  a  delusion,  and  that  the  man  fails,  and  is 
made  bankrupt  and  pays  five  shillings  in  the  pound. 
Now  your  clear  profit  on  the  transaction,  taking  all  things 
into  account,  will  not  have  much  exceeded  a;^5  note. 
To  secure  this  modest  recompense  of  reward,  you  have 
risked  ;^iooo  and  actually  lost  £T^o.  You  will  have 
to  make  1 50  fresh  advances  of  a  thousand  pounds  each 
— that  is  to  say,  you  will  have  to  incur  fresh  uncovered 
risks  to  the  amount  of  ;^  150,000  to  redeem  your  loss. 


LET.  T.i  Cover  for  Debt  37 

Now,  are  the  chances  150  to  i  in  favour  of  almost  any 
man,  that  he  will  repay  an  advance  when  due  ?  Or  to 
put  it  differently ;  out  of  any  1 50  unsecured  advances,  is 
it  a  moral  certainty  that  all  will  be  repaid  ?  You  may 
be  correct  in  149  cases  ;  but  if  you  are  wrong  in  one,  the 
loss  on  that  one  will  swallow  up  the  profits  on  all  the 
rest  and  strip  you  of  even  the  semblance  of  reward  for 
all  your  risk,  work,  and  anxiety. 

You  have  further  to  consider,  in  the  case  of  every 
advance  made  without  security,  that  the  borrower  may 
die  whilst  in  your  debt.  In  this  event,  your  advance 
may  be  locked  up  for  an  indefinite  period.  The 
executors  of  a  deceased  person  are  not  even  obliged  to 
pay  his  debts  before  twelve  months  have  run  ;  but  worse 
than  this  may  happen— the  estate  may  be  thrown  into 
Chancery.  When  your  bank  made  an  advance  of  ;^5000 
for  a  few  months  without  security  to  its  then  client,  Mr. 
De  Vere,  now  long  since  demised,  it  had  no  suspicion 
that  the  transaction  could  under  any  circumstances 
involve  a  prolonged  lock-up  of  ;^  5000,  inasmuch  as  there 
was  value  in  the  estate  to  pay  all  liabilities  many  times 
over.  Nevertheless  the  estate  went  into  Chancery  shortly 
after  Mr.  De  Vere*s  death ;  and  in  spite  of  unremitting 
efforts  on  the  part  of  your  solicitors,  the  order  to  realise 
a  sufficient  portion  of  the  estate  to  pay  its  debts  has  not 
yet  been  issued.  You  report  it  as  being  almost  in  sight 
at  last ;  but  it  has  been  more  or  less  in  sight,  now  on, 
now  off,  any  time  these  seven  years,  and,  like  a  Will-o'- 
the-Wisp,  may  be  fooling  you  again. 

The  only  rule,  therefore,  which  insures  safety  in  every 
case,  is  never  to  make  any  advance  without  security.  It 
is  not  enough  that  you  may  do  so  in  hundreds  of  cases 
with  impunity,  because,  as  we  have  just  seen,  the  fruits  of 
your  success  may  be  swept  away  at  any  time  by  one  reverse. 

And  the  proper  time  to  stipulate  for  security,  it  has  to 
be  observed,  should  be  before  the  opening  of  an  account 
— not  afterwa  ds.  To  allow  an  overdraft  to  remain 
unsecured  for  a  time,  and  then  require  it  to  be  covered, 
will  incense  a  client  with  the  belief  tha*  you  have  heard 


38  The  Country  Banker,  [lit.  ▼. 

of  something  to  his  disadvantage,  and  it  will  be  difficult 
to  persuade  him  to  the  contrary.  You  trusted  me  before, 
he  may  fairly  urge, — why  distrust  me  now  ?  And  thus 
a  requirement,  which,  if  stipulated  for  at  first,  would 
have  been  without  offence,  may  become  a  grievance  and 
affront. 

When  a  man  of  property  borrows  money  from  a 
private  person,  the  usual  basis  and  condition  of  the  loan 
is  a  mortgage  on  the  property  of  the  borrower  ;  not  as  a 
favour,  but  as  a  matter  of  course  and  ordinary  business 
custom.  This  being  so,  it  is  difficult  to  see  on  what 
ground  a  banker  is  expected  to  lend  his  money  to  any- 
one without  a  similar  formality. 

It  may  be  argued  that  there  is  a  material  difference 
betwixt  a  temporary  advance,  such  as  is  generally 
obtained  from  a  banker,  and  the  permanent  loan  which  is 
usually  obtained  on  mortgage.  There  is  this  difference 
certainly, — there  is  less  chance  of  anyone  wasting  his 
substance  in  three  months  than  in  three  years.  Never- 
theless, the  private  lender  can  part  with  his  money 
with  greater  safety  for  years  than  you  can  for  months, 
because  under  all  circumstances  he  has  his  mortgage 
to  fall  back  upon ;  whereas  you  have  nothing.  He 
has  protected  his  advance  with  sufficient  cover  against 
all  weathers,  whilst  yours  stands  naked  and  exposed  to 
every  wind  of  adversity. 

It  will  not  be  wise,  therefore,  to  lay  much  weight  on 
the  temporary  nature  of  your  uncovered  advances  as  an 
element  of  safety.  Some  of  the  heaviest  bad  debts 
known  to  English  banking  had  their  inception  as 
temporary  advances. 

It  is  a  point  worthy  of  consideration,  also,  that  if  you 
excuse  certain  of  your  customers  from  giving  security 
whilst  you  exact  it  from  others,  you  can  hardly  fail  now 
and  then  to  be  guilty  of  injustice.  You  cannot  in  every 
instance  hope  to  draw  with  perfect  exactness  the  line 
which  divides  those  who  are  safe  and  those  who  are  un- 
safe, without  security.  You  require  security  from  Mr. 
Smallfield  because  you  suspect  him  to  be  poor ;  but  you 


LIT.  y.]  Cover  for  Debt  39 

let  Mr.  Manifold  have  what  he  wants  without  security, 
because  you  account  him  to  be  rich.  You  are  justified 
in  this  as  custom  rules  at  present ;  but  would  it  not  be 
a  less  invidious  course  to  require  security  from  both 
alike  ?  Mr.  Smallfield  must  know  that  you  do  make 
advances  to  other  people  without  security,  and  he  will 
deem  It  a  hardship  that  an  old  client,  like  himself,  should 
be  denied  a  like  indulgence. 

Moreover,  you  will  find  that  men  of  substance  are  less 
opposed  to  giving  security  than  men  of  limited  means 
are.  The  chief  objectors  indeed  to  giving  security  for 
advances  are  those  who  have  none  to  give.  They  will 
tell  you  with  calm  eflTrontery  that  men  of  their  standing 
object  to  the  thing  on  principle,  and  that  to  demand 
security  from  men  of  refined  commercial  instincts  is  to 
expose  their  feelings  to  moral  outrage.  You  will  know 
how  to  deal  with  these  susceptibilities  when  occasion 
offers,  and  how  to  put  them  to  a  just  appraisement. 

If  it  were  represented  to  Mr.  Manifold  that  the  giving 
of  security  in  his  case  would  be  purely  a  matter  of  form, 
but  that  it  would  strengthen  your  hands  in  demanding 
it  in  cases  where  security  would  be  indispensable  ;  he 
would  at  least  appreciate  your  difficulty,  and  would  in 
all  likelihood  comply  with  your  request.  And  what  Mr. 
Manifold  would  do,  others  would  be  equally  ready  to  do, 
if  the  reason  of  the  thing  were  plainly  and  frankly  put 
before  them.  When  it  came  to  be  understood  by  traders 
and  others  of  visible  means,  that  by  giving  security  for 
advances,  they  placed  you  in  a  position  to  enforce  the 
same  condition  on  traders  and  others  of  invisible  means, 
it  is  reasonable  to  conclude  that  they  would  comply  with 
your  rule  in  their  own  interests. 

The  unsecured  advances  of  English  banking,  from  the 
outset,  were  doubtless  made  with  an  assured  faith  in 
every  case  that  the  borrowers  were  individuals,  or  firms, 
of  acknowledged  means  and  unimpeachable  credit.  It 
is  not  to  be  imagined  that  any  Manager  or  Board 
of  Directors,  ever  made  an  advance  in  the  deliberate 
expectation    and    belief  of  its  becoming  a  bad    debt 


40  The  Country  Banker,  [lrt.  v. 

Unfortunately,  however,  as  we  have  seen,  it  is  always  in 
the  matter  of  advances  made  without  security,  that  the 
unexpected  in  banking  happens. 

That  would  be  a  remarkable  return,  if  it  were  to  be 
procured,  which  should  shew  the  net  result  to  English 
banking  of  uncovered  advances.  Place  in  one  scale  the 
aggregate  of  profit,  and  in  the  other  the  aggregate  of 
loss  upon  such  accounts,  and  who  can  doubt  for  a  moment 
which  scale  shall  instantly  and  with  a  vengeance  kick 
the  beam  ?  The  losses  upon  uncovered  advances,  within 
recent  memory,  have  been  of  a  magnitude  sufficient,  one 
might  suppose,  to  impress  upon  the  minds  of  bankers, 
with  an  emphasis  that  should  be  lasting,  the  danger  of 
such  advances  ;  and  the  expediency  of  rendering  security 
henceforward  an  indispensable  condition  for  money  lent 
or  advanced. 

To  give  general  effect  to  the  principle  would,  no  doubt, 
require  a  greater  degree  of  concert  and  a  livelier  sense  of 
a  common  danger,  on  the  part  of  English  banks,  than 
exist  at  present ;  because  no  bank  can  act  upon  the 
principle  rigidly,  whilst  its  competitors  play  fast  and 
loose  with  it,  without  a  certain  loss  of  business.  Those 
persons  who  have  come  to  regard  an  uncovered  overdraft, 
less  in  the  light  of  a  favour  than  as  a  matter  of  custom  and 
right,  would  no  doubt  exclaim  against  the  adoption  of 
a  system  that  would  restrict  them  to  a  narrower  range 
of  operations,  and  they  would  without  scruple  take  their 
custom  elsewhere,  provided  they  found  banks  prepared 
to  take  them  at  their  own  valuation,  and  adopt  their 
accounts  on  their  own  terms. 

But  against  the  loss  of  income  thus  occasioned,  place 
the  loss  that  might  arise  some  day  on  one  or  other  of 
these  uncovered  accounts ;  and  it  is  at  least  a  possi- 
bility that  your  present  loss  might  prove  a  future  gain. 
Better  lose  the  profit  on  a  naked  overdraft  now,  than  its 
principal  amount  hereafter. 

It  is  at  least  a  reasonable  contention  that  a  bank  which 
had  the  courage,  in  this  matter,  to  take  custom  by  the 
beard,  and  resolutely  decline,  after  a  certain  date,  to  make 


LET.  T.J  Cover  for  Debt  41 

any  advance  without  security,  would  not  be  a  loser  in 
the  long  run.  It  would  necessarily  do  less  business  for 
a  time,  but  the  profits  made  on  its  reduced  business 
would  at  least  be  beyond  attack ;  so  that  its  shareholders 
would  probably  receive  the  same  dividends  as  hereto- 
fore, and  with  greater  certitude  of  continuance,  because 
there  would  be  no  devouring  inroad  of  bad  debts  every 
now  and  then  to  swallow  profits  up. 

Would  it  be  an  impossible  thing  for  the  Banks  in  any 
given  town  to  come  to  an  understanding  that  after  a 
certain  date  they  would  make  no  advances  upon  fresh 
accounts  without  security  ?  Such  a  course  would  leave 
the  existing  business  of  the  Banks  intact,  to  work  itself 
out  on  existing  conditions  ;  but  it  would  lay  a  basis  foi 
the  business  of  the  future,  which  would  give  it  a  degree 
of  safety  and  solidity  in  this  particular  direction  which 
the  present  system  lacks. 

The  necessity,  moreover,  that  all  advances  by  banks 
should  be  covered  by  security  is  increasing  with  the 
increase  of  competition  in  banking.  The  continued 
attenuation  in  the  rates  of  banking  profit  in  certain 
directions,  which  is  the  outcome  of  this  competition,  is 
gradually  narrowing  the  margin  for  bad  debts.  As 
your  profits  diminish,  so  must  your  risks,  and  notably 
that  class  of  them  which  consists  of  advances  without 
security. 

You  ask  whether  character  is  not  in  itself  a  security ; 
whether  there  are  not  persons,  even  of  limited  means,  to 
whom  it  would  be  safe  for  a  bank  to  lend  money  with- 
out security — persons  who  would  shrink  with  honest 
repulsion  from  undertaking  any  liability  which  they 
did  not  see  their  way  rigorously  to  fulfil. 
^  No  doubt  there  is  security,  of  a  kind,  in  honest  inten- 
tion ;  but  honesty  itself  may  be  overthrown  by  unfore- 
seen disaster.  A  man  may  borrow  money  from  you  and 
resoh^e  with  all  his  might  to  pay  it  back  again.  He 
sees  his  way,  he  believes,  with  perfect  clearness,  at  the 
time,  to  do  so.  But  no  amount  of  honesty  will  endow  a 
man  with  second  sight ;  it  will  not  enable  him  to  see 


42  The  Country  Banker,  [uer.V: 

further  than  his  neighbours  through  a  stone  wall, 
neither  will  it  shield  him  from  business  misfortune. 

To  make  advances  on  the  strength  of  character,  more- 
over, requires  the  banker  who  ventures  upon  this  line  of 
business  to  be  a  reader  of  men  ;  but  this  is  a  faculty  with 
which  bankers  are  not  supremely  gifted.  On  the  con- 
trary, my  experienoi  is  that  bankers  have  the  full 
average  capacity  of  being  taken  in,  when  they  go  beyond 
the  safe  line  of  advances  on  security  and  venture  upon 
the  quicksands  of  personal  credit. 

If  a  customer,  even  of  slender  means,  applies  to  you 
for  a  temporary  advance  without  security,  and  can  satisfy 
you  that  his  difficulty  is  accidental,  and  that  the  means 
to  recoup  your  advance  will  reach  his  hands  immediately, 
and  you  have  dealt  with  him  a  sufficient  number  of 
years  to  be  assured  of  his  integrity  and  righteous  dealing, 
you  might  be  justified  in  making  an  exception  in  his 
case.  You  are  merely  making  an  advance  against  money 
virtually  in  sight  and  which  will  be  in  your  hands  in  a 
few  days;  unless  indeed  he  turn  rogue  at  the  last 
moment,  and  cancel  at  a  stroke  the  honest  repute  of  a 
lifetime.  But  such  exceptional  and  temporary  help  is 
a  widely  different  transaction  from  lending  such  a  man 
money,  without  security,  to  trade  with  and  put  into  his 
business  practically  for  good. 

You  ask  whether  the  profit  on  an  account  ought  not, 
in  some  measure,  to  regulate  the  amount  of  risk  taken 
upon  it :  that  is  to  say — whether  you  would  not  be 
justified  in  making  a  larger  advance,  other  things  being 
equal,  upon  an  account  that  brought  you  in  ;^50  a-year, 
than  upon  one  which  brought  you  an  annual  profit  of 
only  ;^  10. 

The  advance  upon  any  given  account  must  be  regu- 
lated absolutely  by  its  safety,  and  not  by  the  return  of 
profit  which  the  account  may  yield.  When  you  find 
yourself  troubled  with  the  fear  of  losing  a  good  account, 
unless  you  agree  to  continue,  or  enlarge  the  advance 
upon  it  without  security,  the  question  will  narrow  itself 
to  this, — will  you  rather  risk  the  principal  of  the  debt 


LiT.T.]  Cover  for  Debt,  43 

than  lose  the  profit  upon  it  ?  Will  you  let  the  fear  of 
losing  even  the  most  profitable  account  on  your  books 
induce  you  to  continue  or  enlarge  a  risk  upon  it  which 
you  would  not  otherwise  take  ?  There  can  be  only  one 
answer  to  the  question,  and  the  answer  must  be — No 
— because  one  such  bad  debt  may  sweep  away  the  profits 
on  scores  of  other  accounts,  which  expose  you  to  no  risk 
and  bring  you  no  anxiety.  To  blindly  gather  profits  in 
and  make  leaks  for  them  to  run  out  again,  would  surely 
be  a  futile  sort  of  business  to  cultivate !  A  sieve  would 
hardly  suggest  itself  to  a  banker's  mind  as  a  model  on 
which  to  construct  a  reservoir  for  the  retention  of  his 
profits.  Nevertheless  the  temptation  we  speak  of  is  great, 
and  therefore  has  to  be  jealously  watched  and  stead- 
fastly resisted.  It  is  one  of  the  most  insidious  allure- 
ments against  which  you  will  have  to  set  your  face  in 
the  conduct  of  your  business.  The  profits  on  such 
accounts  are  pleasing  to  the  eye;  but  too  frequently 
they  prove  bitter  to  the  taste,  and  become  the  Dead 
Sea  fruit  of  banking. 

But  although  you  cannot  allow  the  profit  on  the  most 
valuable  account  to  obscure  for  a  moment  the  cardinal 
question  of  its  safety,  there  is  one  important  concession 
which  you  make  in  the  working  of  such  accounts, — ^you 
treat  them  as  sacred  from  touch,  even  in  the  exigencies 
of  panic,  so  long  as  the  circumstances  of  the  holders  or 
their  securities  suffer  no  change  for  the  worse.  The 
holders,  thus  exempted  from  the  fear  of  having  their 
overdrafts  called  up,  can  make  consecutive  and  more 
lucrative  use  of  them.  In  consideration  of  the  larger 
profit  which  you  derive  from  such  accounts,  you  enable 
the  operators  upon  them  to  reap  a  corresponding 
advantage  for  themselves. 


LETTER   VI. 

OVERDRAWN    ACCOUNTS. 

Ai  it  shall  not  be  lawful  for  each  man  to  he  a  usurtr  who 
will  J  M  shall  it  not  be  lawful  for  all  to  take  money  at  use — not  to 
prodigals  and  spendthrifts^  but  to  merchants^  young  tradesmen^ 
and  such  ms  stand  in  need,  or  know  honestly  how  to  employ  it. 

Anatomy  of  Melancholy. 

Given,  you  say,  a  responsible  tradesman  applying  for 
leave  to  overdraw  his  account  to  a  certain  limit,  the 
annual  operations  on  the  account  chargeable  with  the 
usual  commission  being  ten  times  the  amount  of  advance, 
and  the  advance  itself  being  secured  by  the  guarantee 
of  persons  safe  for  the  amount ; — given  these  conditions, 
you  desire  to  know  why  you  may  not  accept  such  an 
account  as  soon  as  offered,  instead  of  having  to  refer  it 
in  the  first  instance  to  your  Head  Office  for  approval. 

It  may  at  once  be  conceded  that  you  do  not  stand 
alone  in  your  manifest  leaning  towards  this  class  of 
account.  It  contributes  largely  to  the  revenue  of  a 
Branch  :  it  has  therefore  a  special  attraction  for  officers 
of  spirit,  who  are  still  in  the  fervour  of  their  managerial 
youth.  The  larger  the  number  of  overdrawn  accounts 
— thus  runs  the  argument — the  larger  the  profits ;  and 
the  larger  the  profits  of  a  Branch,  the  higher  the  Manager 
will  stand  in  the  estimation  of  the  Board ;  therefore — the 
nearer  he  will  stand  to  the  next  rise  in  his  salary. 

The  pleasing  fallacies  which  this  formula  involves 
will  come  up  for  hearing  and  judgment  in  due  course. 
Meanwhile,  let  us  deal  with  the  overdrawn  account  on 
its  own  merits. 

And  first  as  regards  the  plea  of  safety.     No  doubt  the 


L«T.  VI.]  Overdrawn  Accounts.  45 

paramount  consideration  with  a  banker  when  he  makes 
an  advance  is  the  certainty  of  its  repayment.  It  may  be 
taken  for  granted  that  no  one  in  the  possession  of  his 
ordinary  senses  would  lend  his  money  without  this 
certainty — without  a  conviction  that  he  would  be  repaid 
his  loan  with  interest  to  the  uttermost  farthing;  But 
with  a  banker,  there  are  considerations  beyond  these. 
The  safety  of  any  particular  account  or  series  of  accounts 
is  one  thing  :  the  financial  safety  of  his  bank  is  another. 
It  involves  no  paradox  to  affirm  that  a  bank  may  not 
have  a  single  unsafe  account  in  its  ledgers,  and  yet  be  in 
an  unsound  position  itself.  A  bank,  to  be  in  a  perfectly 
sound  financial  position,  should  be  able  at  all  times  to 
meet,  with  ease  and  amplitude,  the  demands  which  may 
be  made  upon  it  at  any  time  by  its  depositors.  If 
therefore  it  has  to  look  to  ledgers-full  of  overdrawn 
accounts — no  matter  how  safe  they  may  be — as  its 
principal  means  to  meet  a  rush,  or  even  a  heavy  drain 
upon  its  deposits,  its  position  might  conceivably  be  one 
of  actual  peril.  A  drain  upon  the  resources  of  a  bank, 
whose  business  was  chiefly  confined  to  the  discount  of 
negociable  bills,  could  be  met  by  simply  contracting  the 
volume  of  its  discounts ;  but  you  do  not  necessarily 
diminish  your  existing  overdrafts  a  single  pound  by 
refusing  to  grant  fresh  ones. 

No  doubt  the  overdrafts,  as  a  rule,  have  been  granted 
on  the  understanding  that  they  might  be  called  up  at 
any  time.  But  to  call  up  an  overdrawn  account,  and  to 
obtain  payment  of  it,  are  distinct  and  not  identical 
operations.  Between  the  date  of  recall  and  the  receipt 
of  the  money,  there  will  lie  an  uncertain  interval, 
extending  over  weeks  or  months,  or  even  years,  as  the 
case  may  be. 

If  the  borrower  has  accustomed  himself  to  make  use 
of  the  overdraft  only  now  and  then,  to  meet  a  casual 
excess  of  engagements  over  his  means  in  hand  to  meet 
them,  repayment  will  be  prompt.  If  he  has  used  the 
overdraft  as  a  permanent  addition  to  his  floating  capital, 
repayment  will  be  a  slower,  but  still   a    measurable 


46  The  Country  Banker,  [let.vi. 

process  in  respect  of  time.  But  if  he  has  '  fixed '  it  in  his 
trade — in  buildings  or  machinery,  in  plant,  fixtures,  or 
book  debts,  the  time  of  repayment  will  be  altogether 
uncertain ;  and  even  highly  lucrative  overdrafts  of  this 
description,  you  will  confess,  would  be  but  a  poor 
resource  from  which  to  meet  an  active  drain  upon  your 
deposits. 

You  remind  me  that  there  are  the  sureties  to  fall  back 
upon.  I  will  go  further,  and  admit  that  they  may 
eventually  be  good  for  the  obligation ;  but  this  in  no 
wise  proves  their  ability  to  redeem  the  guarantee  when 
required.  I  apprehend  that  no  sane  person  puts  his 
name  down  as  surety  for  a  thousand  pounds,  or  any 
other  amount,  in  the  expectation  that  he  will  ever 
have  to  pay  the  money.  The  consequence  is,  that 
a  surety  as  little  thinks  of  providing  for  such  a  con- 
tingency, as  he  does  for  paying  off  the  National  Debt. 
As  a  rule,  therefore,  it  is  the  nature  of  sureties  to  be 
unprepared  to  meet  such  engagements. 

Overdrafts,  then,  and  especially  those  of  a  permanent 
character,  are  deficient  in  that  first  requisite  of  a  banker's 
assets,  namely— ready  convertibility  into  money  in  case 
of  need. 

It  is  a  further  objection  to  permanently  overdrawn 
accounts,  that  they  limit  the  extent  of  assistance  which 
you  might  otherwise  afford  to  the  monetary  wants  of 
your  district. 

Let  us  take  the  case  of  your  customer  A.  B.  by  way 
of  illustration.  He  is  allowed  an  overdraft  of  £  looo,  of 
which  he  steadily  avails  himself  to  the  full.  Your 
advance  in  his  case  is  practically  a  dead  loan.  As  long 
as  he  retains  the  money,  it  is  certain  that  you  cannot 
lend  it  to  anyone  else.  But  if  you  had  conditioned  with 
him  that  his  account  was  to  be  overdrawn  only  now  and 
then  to  the  stipulated  limit,  the  money  would  have  been 
at  your  disposal  during  each  interval  to  lend  to  other 
people. 

Let  us  take  the  average  duration  of  permanent  over- 
drafts at  the  moderate  period  of  three  years,  and  con- 


Lvr.  nj  Overdrawn  Accounts,  47 

trast  a  thousand  pounds  thus  advanced  to  an  individual, 
with  a  like  amount  advanced  for  three  months  to  a  suc- 
cession of  individuals.  By  the  one  process,  it  is  obvious 
that  you  assist  one  man  only,  to  the  extent  of  a  thousand 
pounds  within  the  period  ;  whereas  by  the  other  you  assist 
a  dozen  men  to  the  extent  of  a  thousand  pounds  each. 

Not  that  there  must  therefore  be  no  more  overdrawn 
accounts — no  more  banking  cakes  and  ale.  Within 
certain  limits,  which  we  shall  have  to  discuss  by  and  by, 
they  are  an  allowable  and  necessary  feature  of  English 
country  banking.  We  are  here  taking  account  merely  of 
their  financial  incidence  as  banking  assets. 

And  is  the  privilege  of  overdrawing  one's  bank 
account  uniformly  of  advantage  to  the  person  thus 
favoured  }  The  privilege  wisely  used  is  no  doubt  a 
valuable  one ;  but  it  is  often  misused,  to  the  ruin  of  the 
borrower  himself  and  the  injury  of  other  people. 

Let  us  take  from  your  ledgers  a  case  in  point. 
Samuel  Titson,  draper,  Oxborough,  has  been  allowed  an 
overdraft  on  his  account  for  so  many  years,  without 
question,  that  he  has,  practically,  ceased  to  regard  it  as 
a  liability.  The  amount  has  consequently  become  as 
*  fixed '  in  his  trade  as  the  ;^500  with  which  he  boldly 
started  in  business  ten  years  ago.  A  fatal  ambition  to 
out-draper  all  Oxborough  has  brought  him  a  prodigious 
business,  but  it  has  raised  his  liabilities  to  correspond- 
ing figures ;  so  that  when  it  dawns  at  last  upon  your 
predecessor  Mr.  Littleworth,  that  the  overdraft  has 
become  excessive  and  ought  to  be  reduced,  and  he 
applies  for  its  reduction  accordingly,  the  astonished 
Titson  is  on  the  eve  of  applying  for  its  further 
enlargement. 

Now  if  Titson  were  wise,  he  would  cease  forthwith  to 
pile  up  stock  and  book  debts  on  borrowed  money.  He 
would  reverse  the  process,  and  bring  his  liabilities  within 
safer  compass.  But  he  only  cares  to  think  how  best  to 
meet  this  unexpected  and  upsetting  demand  of  the  Bank. 
He  therefore  arranges  with  the  travellers  for  the  whole- 


48  The  Country  Banker,  [let.  vi. 

sale  houses  with  whom  he  deals,  for  the  renewal  of  his 
acceptances  to  them  due  next  *  fourth/  and  thus  gains 
sufficient  command  of  his  daily  receipts  to  effect  the 
required  reduction  in  his  overdraft ^  The  Bank  is 
appeased  for  the  time,  and  Mr.  Titson  thus  completes 
his  first  stage  on  the  road  to  the  Gazette. 

He  cannot  have  proceeded  far,  before  he  discovers  that 
the  reduction  of  his  overdraft  has  not  diminished  his 
liabilities  as  a  whole  by  a  single  pound.  It  has  simply 
varied  their  distribution.  He  has  reduced  his  debt  to 
the  Barik  by  going  further  into  debt  to  other  people. 
His  friends,  the  travellers,  begin  to  coime  their  rounds 
again  with  remorseless  punctuality,  and  if  his  difficulty 
was  great  in  fencing  them  off  the  previous  journey,  it  is 
fourfold  greater  now :  because  whilst  their  demands  have 
doubled  in  amount,  his  excuses  for  delay  have  lost  half 
their  force.  He  cannot  now  rely  upon  receiving  much 
from  his  book  debts  before  the  turn  of  the  year  ;  but  he 
can  draw  upon  his  debtors  for  what  they  owe  him,  and 
upon  the  more  affable  of  them,  no  doubt,  for  a  good  deal 
more.  With  these  bills  and  a  sprinkling  of  cash,  backed 
by  promises  of  enlarged  orders  and  payments  in  full 
next  time,  Titson  wheedles  his  travellers  into  unwilling 
contentment,  and  thus  finds  his  way  to  the  end  of  the 
second  stage. 

Early  in  the  third,  the  Bank  is  again  at  his  doors  for  a 
further  reduction,  and  the  first  batch  of  his  renewed 
acceptances  are  rapidly  becoming  due  and  must  be  met 
in  cash,  come  what  may.  Dealing  as  usual  with  his 
difficulties  as  they  arise,  and  taking  no  thought  for  the 

1  The  practice,  on  the  part  of  retail  tradesmen,  of  accepting  bills  of 
exchange  in  payment  for  their  purchases  from  wholesale  houses,  has 
greatly  diminished  since  the  above  was  written,  and  one  result  of 
this  is  that  the  number  of  bills  drawn  on  the  first  of  each  month  and 
falling  due  on  *  the  fourth '  and  the  number  of  requests  for  the 
renewal  of  such  bills  have  diminished  also.  Moreover,  the  com- 
mercial traveller  is  not  now  called  upon  to  so  great  extent  as  formerly 
to  act  as  financial  intermediary  between  the  wholesale  house  which 
he  represents  and  the  retailer  on  whom  he  has  to  call.  The  growing 
tendency  is  for  the  buyer  and  seller  to  dispense  with  intermediaries 
and  settle  up  with  each  other  direct. 


LKT.  n.]  Overdrawn  Accounts,  49 

morrow,  Titson  now  decides  upon  a  vigorous  move : 
he  resolves  to  have  a  clearance  sale.  The  lovers  of 
bargains  at  50  per  cent,  below  prime  cost  flock  to  the 
shop,  and  enough  is  realized  to  meet  all  pressing  claims. 
Mr.  Titson  thus  tides  on  ;  but  only  towards  increasing 
difficulties  and  final  collapse. 

A  distant  creditor,  exasperated  at  last  by  repeated 
promises  of  payment  which  arc  never  kept,  now  issues  a 
writ,  and  even  the  stout  heart  of  Titson  sinks  within 
him.  A  traveller  he  could  cajole,  the  Bank  he  might  put 
off,  an  acceptance  he  might  renew ;  but  a  writ,  he  knows, 
means  for  him  money  down,  debt  and  costs,  or  ruin 
swift  and  irretrievable.  Thus  driven  to  the  wall,  money- 
less and  desperate,  and  giving  ear  to  evil  counsel,  he 
finds  refuge  in  a  cognovit,  which  pacifies  the  obnoxious 
creditor  for  a  time ;  and  thus  Mr.  Titson  accomplishes 
the  fourth  stage  of  his  career. 

The  writ  has  barely  been  satisfied,  when  the  bills 
drawn  by  Titson  upon  his  customers  begin  to  return  to 
the  holders  with  a  persistent  uniformity  of  dishonour — 
the  reason  being,  that  they  had  for  the  most  part  been 
accepted  on  the  understanding  that  Titson  was  to  meet 
them  when  due — the  acceptors,  meanwhile,  sending  him 
their  *  takings*  as  they  came  in,  without  reference  to 
the  bills  at  all.  His  own  acceptances,  further  renewals 
being  denied  him,  now  begin  to  be  dishonoured.  The 
Bank,  thoroughly  alarmed,  becomes  increasingly  urgent ; 
whilst  creditors  at  a  distance,  finding  that  Mr.  Titson's 
signature  to  a  cheque  is  no  longer  regarded  even  on  a 
second  or  third  presentation,  become  uneasy  and  resent- 
ful. Thus  beset  on  all  sides,  and  driven  to  the  wall,  an 
assignment  for  the  general  behoof  is  wrung  from  him  at 
last  Several  large  creditors,  however,  finding  that  others 
have  been  paid  in  full,  whilst  they  have  been  left  in  the 
lurch,  decline  to  come  in,  and  so  the  affair  terminates  in 
bankruptcy  and  sixpence  in  the  pound. 


LETTER  VII. 

INSOLVENT  TRADING. 

Debt !  Why,  thafs  more  for  your  credit ^  sir ;  it  is  an  6x^ 
tdUnt policy  to  owe  much  in  these  days,  if  you  will  note  it. 

Every  Man  out  of  His  Humour. 

The  unprofessional  reader  of  this  correspondence,  if 
there  be  any  such  person,  may  regard  this  story  of  a 
draper  as  less  indebted  to  fact  for  its  materials  than  to 
the  fancy  of  the  writer ;  but  no  English  country  banker 
will  have  much  difficulty  in  recognizing  in  Samuel  Titson 
a  familiar  acquaintance. 

It  has  to  be  admitted  that  the  blame  of  his  career  did 
not  rest  altogether  with  Titson  himself.  In  respect  of 
the  money  lent  him  by  the  Bank,  for  instance,  he  merely 
made  the  same  improvident  use  of  it  which  most  persons 
in  his  position  and  with  his  lights  would  have  done. 
That  is  to  say,  he  put  it  into  his  trade  as  so  much 
capital.  He  never  reckoned  upon  the  Bank  calling  it  up, 
and  made  no  provision  for  such  a  contingency.  Had  your 
predecessor  kept  Titson's  overdraft  strictly  to  its  original 
and  proper  limit,  he  at  least  would  have  saved  the  Bank 
from  abetting  Titson  in  his  mania  for  extension.  As  it 
was,  Mr.  Littleworth,  good  easy  man,  had  unbounded 
faith  in  Titson's  energy  and  business  habits.  His 
periodical  report  on  the  account  might  have  been 
stereotyped,  for  it  invariably  ran  thus  ; — '  Perfectly  safe, 
business  increasing,  making  money  fast'  As  a  matter 
of  fact,  the  author  of  this  report  was  Titson  himself,  who 
gave  it  to  Mr.  Littleworth,  who  repeated  it  to  the 
Directors  as  his  own  ;  which  in  one  sense  it  was,  because 
theie  is  no  doubt  that  he  honestly  believed  it  to  be  true 


LET.  TIL]  Insolvent  Trading.  51 

In  this  belief  he  allowed  the  overdraft  to  increase,  not  in 
proportion  to  a  corresponding  increase  in  Titson's  capital, 
duly  ascertained,  but  in  proportion  to  the  operations  on 
the  account  He  appears  to  have  divided  these  by  ten, 
to  find  the  amount  which  the  Bank  might  safely  advance 
to  Titson  without  security  and  without  enquiry.  When 
the  operations  were  ;^  5000,  the  limit  of  safety  would  be 
reached  at  ;^5oo.  When  they  rose  to  £\o,QOOy  the  limit 
would  be  reached  at  £  1000,  and  so  forth.  He  computed 
Titson's  success  by  the  volume  of  his  business,  and 
determined  his  stability  by  the  rule  of  three. 

It  does  not  appear  to  have  struck  him  that  Titson's 
principle  of  trade  was  the  *  nimble  penny,'  and  that 
his  only  chance  against  the  old-established  drapers  of 
the  town  was  to  go  in  for  small  profits  and  quick 
returns.  Titson  held  that  twenty  transactions,  on  which 
the  profit  was  a  shilling  each,  were  equal  to  a  single 
transaction  on  which  the  profit  was  a  pound.  Working 
on  this  maxim,  the  operations  on  his  bank  account 
necessarily  increased,  hand  over  hand.  But  their  rapid 
increase  held  no  warning  for  Mr.  Littleworth.  He  was 
content  to  measure  Titson's  stability  by  his  spread  of 
canvas,  rather  than  by  his  weight  of  ballast. 

When  the  matter  came  to  be  looked  into,  it  was  seen 
that  the  Bank  had  virtually  been  in  partnership  with 
Titson  for  years,  and  doing  an  active  business  in  the 
drapery  line  without  knowing  it  But  the  co-partnership 
had  this  curious  disadvantage;  —  the  profits,  if  any, 
would  go  to  Mr.  Titson  :  whereas  the  losses  would  fall 
upon  the  Bank. 

Now  there  are  mercers  on  your  books,  who  work  their 
business  on  capitals  of  their  own,  and  seldom  trouble  you 
for  advances ;  was  it  fair  to  them  to  enable  a  man  of 
straw,  by  means  of  excessive  banking  facilities,  to  half 
ruin  their  business  for  several  years  running  ? 

You  suggest,  in  reply,  that  the  man  who  has  to  pay 
for  the  use  of  capital  cannot  well  undersell  the  man  who 
is  working  with  his  own.  But  Titson  did,  and  thousands 
do.    Moreover,  Titson  did  not  pay  for  the  capital  lent 

E  % 


5^  The  Country  Banker,  (let.  vii. 

him  by  the  Bank.  He  paid  you  neither  principal  nor 
interest.  He  fought  his  competitors  in  trade  with  what 
was  found  money  to  him,  although  it  was  lost  money 
to  you. 

The  man  who  is  regardless  how  many  shillings  in  the 
pound  he  may  some  day  pay  his  creditors,  has  a  per- 
ceptible advantage  over  those  who  are  scrupulous  to  pay 
their  debts  to  the  last  shilling.  He  has  the  difference — 
the  sum  of  his  delinquency — to  play  with.  If  he  is 
owing  ;^  20,000  when  he  calls  his  creditors  together,  and 
his  assets  have  shrunk  to  ;^5000,  he  has  manifestly  had 
;^  1 5,000  to  do  with  as  he  thought  fit.  He  may  have 
added  a  ward  to  a  hospital  out  of  it,  or  a  spire  to  the 
church,  or  enlarged  the  parish  schoolhouse,  or  done  any 
other  act  of  fraudulent  munificence  with  other  people's 
money.  To  steal  a  sheep  and  give  the  trotters  away  for 
God's  sake,  is  an  old  Spanish  saw.  In  the  case  of  our 
insolvent  it  has  become  a  modern  instance.  He  could 
afford  to  be  generous.  Out  of  every  sovereign  owing  to 
his  creditors,  he  has  appropriated  fifteen  shillings  to  him- 
self and  left  five  shillings  for  them.  But  he  may  not 
have  devoted  any  portion  of  his  deficiency  even  to  acts 
of  spurious  beneficence.  He  may  have  preferred  to  use 
his  creditors'  money  to  speculate  or  gamble  with,  or  to 
settle  upon  his  wife,  or  spend  in  riotous  living,  or  to  hide 
away  until  the  thing  should  blow  over, — that  is  to  say, 
until  the  denuded  creditors  should  have  had  their  divi- 
dend and  he  his  discharge. 

But  Titson,  it  has  to  be  admitted,  did  none  of  these 
things.  He  devoted  the  difference  betwixt  his  debts  and 
his  dividend — say  nineteen  and  sixpence  out  of  every 
pound — to  the  single  purpose  of  driving  competition 
out  of  Oxborough,  by  selling  for  years  together  below 
cost  price.  No  wonder  his  competitors  in  business 
were  indignant  with  your  Bank,  when  the  extent  of  its 
advances  to  their  aggressive  rival  became  known. 

You  submit  that  the  case  of  Titson  is  exceptional ; 
because  a  man  who  uses  borrowed  money,  not  knowing 
when  he  may  have  to  pay  it  back,  will,  as  a  rule,  be  more 


LET.  TIL]  Insolvent  Trading,  53 

careful  how  he  lays  it  out  than  if  it  were  his  own.  It 
may  be  so  with  borrowers  of  tender  conscience  ;  but  that 
is  not  an  universal  quality,  nor  is  it  one  on  which  it  would 
be  prudent  for  a  banker  to  lean  exclusively  for  the 
repayment  of  an  advance. 

Moreover,  there  are  persons  with  a  certain  obliquity  of 
business  vision,  who  profess  to  regard  a  loan  from  a 
bank  and  a  loan  from  a  private  person  as  things  morally 
distinct.  To  an  individual,  they  will  tell  you,  the  loss  of 
the  money  might  be  ruin  ;  but  to  a  great  joint  stock  bank 
it  would  be  only  so  much  to  each  proprietor,  a  mere 
bagatelle,  which  he  would  never  feel.  *  In  the  name  of 
Mercury,  the  great  god  of  thieves,'  exclaims  Sydney 
Smith,  *did  any  man  ever  hear  of  debtors  alleging 
the  wealth  of  the  lender  as  a  reason  for  eluding  the  pay- 
ment of  the  loan  ? '  Advances,  without  the  most  ample 
security,  to  persons  holding  these  views,  will  no  doubt  be 
marked  in  your  private  register  as  doubly  hazardous, 
and  shunned  accordingly  with  steadfast  resolution. 

We  were  once  told  by  a  man  with  whom  we  had  made 
a  bad  debt, — a  man  of  fair  intelligence  and  average 
honesty, — that  we  need  not  be  so  angry  with  him,  because, 
if  we  would  cast  up  the  interest  and  commission  he  had 
paid  on  his  account  during  the  last  five  and  twenty  years, 
we  should  find  that  we  had  lost  little  or  nothing  by 
him » 


LETTER    VIII. 

OCCASIONAL   OVERDRAFTS. 

What  surprised  me  most  waSy  that^  though  he  was  a  moruy 
borrower^  he  defended  his  opinion  with  as  much  obstinacy  as  if  he 
had  been  my  patron.  Vicar  of  Wakefield. 

It  is  not  to  be  assumed  that  every  one  makes  the 
like  improvident  use  of  an  overdraft  that  Samuel  Titson 
did.  As  a  rule,  experience  points  the  other  way.  The 
customers  of  a  country  bank  are  not  all  Titsons.  His 
congeners  in  trade,  no  doubt,  are  to  be  found  here  and 
there  amongst  the  constituents  of  every  provincial 
bank ;  but  the  majority  of  people  in  business  have  a 
wholesome  dread  of  getting  beyond  their  depths. 
They,  therefore,  avail  themselves  with  thrift  and  only 
upon  occasion,  of  the  facilities  offered  by  the  overdrawn 
account. 

The  non-arrival  of  a  ship  when  due,  for  example,  the 
detention  of  a  mail,  the  non-receipt  of  a  promised  pay- 
ment, and  other  such  incidents  in  the  daily  course  of  busi- 
ness life,  are  proper  occasions  for  a  timely  advance  from 
one's  banker.  So,  likewise,  when  rent  day  has  come  round 
before  the  farmer  has  sold  his  wheat  or  his  fat  stock  ;  or 
when  the  mercer,  the  woolstapler,  the  tanner,  or  any 
other  trader,  is  replenishing  his  stock  of  raw  material  or 
manufactured  goods;  in  these  and  in  like  cases,  the 
banker  may  reasonably  be  expected  to  assist  with  an 
advance,  in  proportion  to  the  means  of  the  borrower,  his 
habits  of  business,  and  the  circumstances  of  the  case  If 
these  are  perfectly  known  to  you,  you  will  rarely  make 
an  imprudent  advance. 


LIT.  VIII.]  Occasional  Overdrafts,  55 

You  tell  me  that  there  are  persons  of  undoubted 
means  and  position,  who  would  not  submit  to  be  cate« 
chised  as  to  the  object  of  an  advance;  and  that 
sometimes  the  first  notice  you  have  of  an  overdraft 
being  required,  is  the  presentment  of  the  cheque  which 
creates  it.  But  in  nine  cases  out  of  ten  you  will 
know,  without  asking,  whether  the  proposed  advance 
will  be  in  the  strict  course  of  a  man's  business  ;  and 
in  the  remaining  case,  if  the  borrower  be  of  undoubted 
means  and  position,  there  will  be  no  need  to  catechise 
him.  He  has  probably  overdrawn  his  account  by 
inadvertence. 

Your  active  accounts  are  chiefly  those  of  men  engaged 
in  business  or  trade,  and  no  man  will  lightly  risk  his 
commercial  credit  by  issuing  a  cheque  that  may  come 
back  to  him  through  several  banks,  with  the  damaging 
inscription — *  Refer  to  the  drawer,'  on  the  face  of  it 

No  doubt  there  are  persons  of  another  stamp,  whose 
accounts  have  a  constant  tendency  to  get  on  the  wrong 
side  of  your  ledger,  and  who  will  trade  upon  your  indul- 
gence, not  to  the  extent  of  their  means,  which  would  be 
easy  of  estimate,  but  to  the  extent  of  their  audacity, 
which  is  incalculable.  The  short  and  easy  method  with 
such  is  to  dishonour,  without  scruple,  the  first  cheque 
which  exceeds,  by  however  little,  the  balance  at  their 
credit  No  doubt  they  will  vapour  and  bully.  Mr. 
Horace  Larkyns,  whose  cheque  you  have  dishonoured 
for  a  *  dirty  hundred,'  will  menace  you  with  the  direst 
penalties  of  the  law  for  this  outrage  to  his  feelings 
and  stain  upon  his  honour.  But  you  have  the  sub- 
stantial fact  to  set  against  this  windy  bluster,  that 
the  hundred  pounds  are  in  your  till  and  not  in 
the  outraged  Mr.  Larkyns*  pocket.  You  can  there- 
fore regard  the  indignant  closure  of  his  account 
with  outward  serenity,  and  the  loss  of  it  with  inward 
satisfaction. 

No  man  engaged  in  business  or  trade,  to  whom  credit 
is  an  object,  will  lightly  change  his  bankers ;  because, 
for  one  thing,  his  business  connections,  particularly  the 


56  The  Country  Banker.  [let.  vm. 

holders  of  his  acceptances,  will  at  once  be  moved  with  a 
desire  to  know  the  reason  why.  They  will  have  a  deli- 
cacy in  putting  the  question  direct  to  himself,  but  there 
will  be  no  lack  of  persons  ready  to  explain  the  matter 
fully.  The  reasons  assigned  will  vary,  no  doubt ;  but, 
on  the  whole,  they  will  be  of  a  detrimental  cast,  even 
when  restricted  to  the  platitude  that  no  man  changes  his 
banker  without  good  cause — a  conclusion  which  leaves  it 
open  to  the  evil-minded  to  assume  that  the  change  has 
not  been  a  voluntary  one,  and  to  deliver  themselves 
accordingly. 

A  prudent  man  will  give  due  weight  to  these  possi- 
bilities before  threatening  his  bankers  with  the  removal 
of  his  account,  lest  they  take  him  at  his  word  ;  because, 
if  a  Bank  has  to  choose  betwixt  parting  with  an  account 
or  with  its  established  rules  of  business,  there  can  be  no 
doubt  which  course  it  will  take:  it  will  abide  by  its 
rules  and  let  the  account  go. 

And  you  will  do  wisely  to  make  it  a  rule  absolute, 
whenever  you  are  invited  to  lend  the  Bank's  money,  in 
any  shape  or  for  any  purpose,  to  satisfy  your  mind  that 
the  means  will  exist,  in  available  form,  to  repay  tht 
money  when  due.  In  most  cases  you  will  know  this 
without  inquiry.  You  will  know  that  the  money  you  are 
parting  with,  will  go  to  purchase  an  equal  value  of  pro- 
duce, commodities  or  property,  or  to  pay  for  purchases 
of  such  already  made.  The  means  to  meet  the  advance 
when  due,  therefore,  will  be  in  the  possession  or  control 
of  the  person  to  whom  you  lend  the  money.  In  cases 
where  this  is  not  apparent,  it  will  be  your  business  to 
inquire.  You  are  not  obliged  to  lend  money  in  the 
dark.  When  a  man  comes  to  you  for  the  loan  of  a  few 
hundreds,  or  a  few  thousands,  as  the  case  may  be,  unless 
the  transaction  is  clearly  in  the  direct  line  of  his  busi- 
ness, you  have  a  right  to  know  for  what  purpose  the 
advance  is  wanted.  Without  this  knowledge,  what 
assurance  have  you  that  the  money  may  not  be  spent  in 
furnishing  a  house,  or  dowering  a  child,  or  opening  a 
quarry,  or  sinking  a  mine,  or  in  some  other  way  which 


tn.  Tin.]  Occasional  Overdrafts,  57 

shall  be  equally  successful  in  locking  your  money  up 
beyond  human  reach  ? 

You  cannot  in  every  case,  it  is  true,  move  in  a  right  line 
towards  a  given  principle  in  banking.  Circumstances, 
like  a  contrary  wind,  may  cause  you  at  times  to  deviate 
a  point  or  two  from  your  direct  course  ;  but  you  can 
always  keep  heading  towards  it. 

When  Squire  Oakfield,  for  instance,  sends  his  cheque 
in  without  notice,  and  overdraws  his  account  a  thousand 
or  two,  although  he  has  thus  violated  one  of  the  cardinal 
principles  of  your  Rules  and  Regulations,  it  would  not 
be  wise,  however  regular  it  might  be,  to  dishonour  the 
cheque ;  because  the  Squire  is  at  once  a  wealthy  and  a 
choleric  gentleman,  and  probably  believed  that  by  over- 
drawing his  account  he  was  bestowing  a  favour  rather 
than  receiving  one.  You  cannot  afford  to  quarrel  with 
the  Squire.  You  will  prefer  to  follow  a  famous  example 
for  the  moment,  and  turn  your  blind  eye  upon  the  strict 
letter  of  your  instructions  ;  because,  in  addition  to  him- 
self, his  agents  and  tenants,  and  many  of  his  nearest 
relatives  bank  with  you.  There  is  a  time  for  gathering 
stones,  and  a  time  for  throwing  them  away ;  but  this 
would  not  be  a  prudent  occasion  for  the  scattering  pro- 
cess. Once  cast  away  the  Squire's  goodwill,  and  drive 
him  to  the  other  bank,  and  without  any  hostile  action  on 
his  part,  he  will  soon  have  a  perceptible  following. 

Again  :  a  certain  account  may  of  itself  be  less  opera- 
tive than  your  rules  stipulate  for ;  and  yet  it  may  not 
be  politic  to  call  the  balance  up.  Like  the  Squire's, 
certain  accounts  have  roots.  Your  unprofitable  client 
.  may  have  friends  and  relatives  amongst  your  customers, 
and  in  pulling  his  account  up,  you  may  root  others  up 
along  with  it  In  this,  as  in  the  previous  case,  you  will 
guide  your  course,  not  by  the  value  of  the  one  account, 
if  it  be  absolutely  safe,  but  rather  by  the  value  of  the 
group. 

The  overdrawn  account  exists,  as  we  have  said,  and 
will  continue  to  exist  as  a  prominent  feature  in  English 


5^  The  Country  Banker,  [lbt.  viii. 

country  banking.  And  to  this  there  is  no  objection 
within  certain  limits.  We  have  thus  far  been  analysing 
this  form  of  advance,  npt  with  a  view  to  its  extinction, 
but  to  its  limitation.  The  objections  to  it  rest  on 
financial  grounds,  and  amount  to  this — ^that  overdrafts,  as 
a  rule,  are  the  least  convertible  form  of  a  bank's  assets, 
and  therefore  should  never  exceed  a  certain  percentage 
of  its  resources.  What  that  percentage  ought  to  be,  we 
shall  have  occasion  to  discuss  when  we  come  to  the 
management  of  a  head  office.  Meanwhile,  the  fact  that 
there  is  such  a  percentage  and  limit,  furnishes  an  answer 
to  your  opening  question.  Why  every  proposal  for  an 
overdrawn  account  must  be  referred  in  the  first  instance 
to  your  Head  Office  for  consideration  ;  because  it  is  mani- 
fest that  if  all  your  Branches  had  the  power  of  granting 
overdrafts  at  will,  the  limits  assigned  by  your  Head 
Office  to  the  total  overdrafts  of  the  Bank  might  at  any 
time  be  seriously  overstepped. 

The  first  question  which  a  Branch  manager  puts  to 
himself  in  respect  of  a  proposed  transaction  is,  Will  it  be 
safe  ?  And  the  second  is.  Will  it  pay  ?  But  at  head- 
quarters a  third  question  lies  beyond  and  takes  pre- 
cedence of  these,  and  is  this — Will  it  suit  ?  You  are  not 
to  feel  discouraged,  therefore,  if  the  Board  occasionally 
decline  offers  of  transactions  which  may  seem  to  you  as 
even  exceptionally  desirable,  because  it  may  well  happen 
that  what  might  be  of  special  advantage  to  your  branch 
might  not  be  to  the  interest  or  convenience  of  the  Bank 
at  large.  For  one  reason,  the  monetary  outlook  may  not 
be  propitious ;  and  for  another,  the  limit  assigned  by  your 
authorities  for  any  particular  class  of  transaction  may 
have  been  already  reached,  and  the  door  closed  against 
further  increase  in  that  direction  for  the  time  being. 


LETTER   IX 

RECALL    OF  ADVANCES. 

While  the  money  is  hoped for^  and  for  a  short  time  after  it  has 
been  receiveiy  he  who  lends  it  is  a  friend  and  benefactor:  by  the 
time  the  money  is  spent^  and  the  evil  hour  of  reckoning  is  come^  the 
benefactor  is  found  to  have  changed  his  nature  and  to  have  put  on 
the  tyrant  and  the  oppressor.  It  is  an  oppression  for  a  man  to 
reclaim  his  own  money :  it  is  none  to  keep  it  from  him. 

Defence  or  Usury. 

The  Portuguese  have  a  saying,  If  you  would  make 
an  enemy,  lend  a  man  money  and  ask  it  of  him  again  ; 
and  there  is  no  country  bank  in  England  which  has  not 
had  occasion  at  times  to  digest  the  truth  and  pungency 
of  the  adage. 

When  the  building  committee  of  a  church,  or  chapel, 
or  school,  come  to  you  for  an  advance  to  complete  the 
structure,  in  anticipation  of  promised  subscriptions,  and 
offer  their  joint  and  several  guarantee  for  the  advance,  it 
will  be  difficult  to  refuse  it ;  because  the  committee  may 
include  some  of  your  most  valued  customers,  who  might 
resent  your  refusal  as  a  slight  to  themselves.  They  will 
be  slow  to  comprehend  why  you  should  refuse  to 
advance  a  sum  of  money  for  a  beneficent  object,  on  the 
security  of  gentlemen  good  for  many  times  the  amount. 

Nevertheless,  if  the  subscriptions  do  not  come  in,  and 
you  have  in  the  end  to  come  upon  the  guarantors  for 
payment  of  the  money,  you  will  be  fortunate  if  you  do 
not  more  or  less  offend  them  all.  Your  application  will 
be  a  provoking  reminder  to  each,  of  his  over-sanguine 
trust  in  promised  contributions.  Some  will  offer  to  pay 
their  quota  of  the  guarantee  at  once,  provided  you  will 


6o  The  Country  Banker,  [let.  ix. 

free  them  from  further  responsibility  ;  but  this  you  can- 
not do,  because  the  liability  is  joint  as  well  as  several, 
and  no  one  can  be  released,  without  vitiating  the  security, 
until  the  whole  is  paid.  Others  will  hold  back,  from  a 
natural  indisposition  to  pay  a  debt  for  which,  personally, 
they  have  had  no  consideration,  and  for  which  they  have 
an  indistinct  notion,  perhaps,  that  they  are  not  morally 
responsible. 

Advances,  therefore,  for  whatever  object,  on  the 
security  of  a  number  of  obligants,  although  they  may  be 
abundantly  safe,  are  not  always  expedient  They  are 
almost  certain  in  the  long  run  to  bring  you  into  un- 
pleasant relations  with  some  of  the  parties,  and  more 
particularly  with  those  who  refuse  to  understand  why  a 
large  bank  cannot  permit  a  loan  to  outstand  for  any 
length  of  time,  so  long  as  it  is  safe.  They  refuse  to  see 
that  the  Bank  is  doing  them  a  service  in  pressing  for 
early  payment.  It  does  not  occur  to  them  that  their  co- 
obligants  are  mortal,  and  that  every  obligant  who  dies 
practically  bequeaths  his  liability  to  the  survivors.  The 
signatory  who  would  have  the  thing  outstand  for  twenty 
years,  if  need  were,  might  find  himself  the  sole  surviving 
debtor  in  the  end ;  and  would  then  see  the  thing,  no 
doubt,  in  a  proper  light  when  it  was  too  late. 

You  ask  what  is  to  be  done  in  such  cases  ?  You 
cannot,  you  state,  refuse  such  advances,  and  you  cannot 
recall  them  without  giving  offence.  It  only  remains  for 
you  to  point  out,  at  the  time,  the  unpleasant  possibilities 
which  such  advances  involve,  and  to  dissuade  committees 
from  borrowing  at  all,  if  you  can.  If  they  disregard 
your  advice,  as  they  probably  will  in  most  cases,  the 
consequences  will  be  of  their  own  seeking.  You  will 
thus  acquit  yourself  of  having  been  a  silent  observer  of 
the  transaction,  or  an  accessory  to  their  imprudence. 

There  are  borrowers  in  plenty  who  do  not  trouble 
themselves  to  reflect  how  or  when  an  advance  from  a 
bank  is  to  be  repaid. 

The  proper  business  of  a  bank,  in  their  estimation, 
i«  to  lend  money  to  any  amount,  ro  matter  for  what 


L»T.  IX.1  Recall  of  Advances,  61 

length  of  time,  nor  for  what  purpose.  They  cannot 
imagine  why  it  should  concern  a  bank  how  the  money 
is  laid  out,  nor  how  long  it  may  remain  unpaid,  so 
long  as  the  loan  yields  interest,  and  is  covered  by 
security.  You  will  have  to  reason  such  people  out  of 
delusions  like  these.  If  you  fail,  you  have  a  conclusive 
argument  always  at  command — ^you  can  refuse  to  lend 
the  money.  You  can  refuse  to  countenance  transactions 
which  may  lead  the  parties  into  trouble.  You  are  not 
obliged  to  furnish  people  with  weapons  to  break  their 
own  heads  with. 

When  overdrafts  are  allowed  for  specific  periods,  be 
it  for  weeks  or  months,  or  any  other  sections  of  time, 
you  will  have  to  see  that  such  advances  are  repaid  when 
due.  If  your  practice  in  this  respect  be  lax,  the  ma- 
jority of  your  customers  will  not  be  slow  to  profit  by 
your  example.  If  you  are  loose  and  inexact  in  your 
requirements,  they  will  not  strain  after  rigid  punctuality 
themselves.  They  are  not  likely  to  assail  you  with 
reminders  that  their  debts  to  you  are  overdue,  and 
implore  you  to  call  them  up. 

It  is  no  doubt  possible,  as  you  suggest,  to  be  over 
exacting  in  this  particular ;  but  that  is  on  the  assump- 
tion that  you  act  in  the  matter  without  discretion.  This 
is  not  required  of  you.  A  certain  latitude  is  allowed  to 
every  Manager.  You  cannot  in  every  case,  as  we  have 
seen,  enforce  the  strict  letter  of  your  instructions  without 
respect  of  persons,  circumstances  or  results.  The  law  of 
successful  management  should  not  possess  the  rigidity 
of  cast  iron  ;  it  should  rather  have  the  property  of  highly 
tempered  steel.  It  should  have  a  certain  degree  of 
flexibility — a  certain  margin  within  which  to  play.  The 
king,  the  Spaniards  say,  goes  as  far  as  he  is  able — not  as 
far  as  he  would. 

In  the  application  of  this  particular  rule,  you  will  find 
that  there  is  a  time  to  bind  and  a  time  to  loose.  There 
are  those  amongst  your  customers,  and  they  are  the 
great  majority,  who  must  be  held  strictly  to  their 
engagements  in  respect  of  time  ;  whilst  there  are  others, 


62  The  Country  Banker,  [let.  ix 

who  may  safely  be  left  to  fulfil  such  engagements  at 
their  own  time,  even  if  it  should  vary  a  little  from  yours. 

But  there  are  people,  who  have  had  the  use  of  the 
Bank's  money,  it  may  be  for  years,  who  will  resent  your 
calling  it  up,  whenever  you  do  so,  as  an  injury  and 
affront.  It  matters  not  that  the  advance  may  be  long 
overdue,  or  that  the  security  has  become  depreciated,  or 
the  transactions  on  the  account  unsatisfactory,  or  that  you 
wish  to  reduce  such  advances  generally.  The  borrower 
will  refuse  to  be  conciliated.  Is  it  possible — he  will  ask 
you,  with  unconscious  insolence — that  a  large  bank  like 
yours  can  want  the  money }  If  not,  why  put  him  to 
inconvenience,  so  long  as  he  pays  you  good  interest  for 
it  ?  Have  you  lost  confidence  in  him  ?  If  not,  why 
disturb  an  arrangement  which  has  gone  on  for  so  long 
without  a  word  of  objection  on  your  part  ?  The  man 
who  takes  this  perverted  view  of  things  will  be  trans  - 
formed  into  a  life-long  enemy,  whenever  the  Bank  shah 
insist  upon  having  its  own  again,  whether  his  position 
be  sound  or  the  reverse.  If  sound,  he  will  impute  the 
withdrawal  of  your  advance  to  personal  spite.  If,  on  the 
other  hand,  he  has  to  go  into  the  Gazette,  he  will  revile 
the  Bank  for  having  rendered  that  step  necessary.  It 
would  not  be  an  unheard-of  thing  if  he  went  a  step 
further  and  charged  you  and  your  advances  with  his  ruin 
— a  rancorous  accusation,  when  your  accuser  is  about  to 
repay  your  good  nature  by  a  dividend  the  minuteness  of 
which  is  a  satire  on  your  credulity. 

It  betrays  a  curious  twist  of  moral  vision,  but  it  is  not 
the  less  a  fact,  that  when  one  of  your  customers  fails 
and  compounds  with  his  creditors,  certain  of  your  other 
clients  have  a  feeling  that  they,  too,  are  entitled  in  some 
vague  way  to  consideration.  They  would  try  a  little 
failure  of  their  own,  perhaps,  but  unfortunately  they  are 
perfectly  solvent,  and  known  to  be  so.  This  is  certain  ; 
that  if  you  let  Sharpies  off  with  half  his  debt  to  the 
Bank — that  is  the  way  they  will  put  it— they  will  have 
an  indistinct  notion  that  they  ought  not  to  be  overlooked 
altogether,  and  will  persuade  themselves  that  the  obliga- 


LIT.  IS.]  Recall  of  Advances,  63 

tion  to  pay  twenty  shillings  in  the  pound  is,  in  their 
case,  inequitable,  and  of  the  nature  of  a  hardship. 
Persons  subject  to  this  infirmity  of  commercial  vision, 
would  look  upon  the  plunder  of  a  bank  by  a  fraudulent 
neighbour  as  scarcely  amounting  to  an  impropriety. 

You  tell  me,  indeed,  that  joy  is  openly  expressed  in 
certain  quarters  in  Oxborough  over  every  bad  debt  you 
make,  and  that  popular  sympathy  is  always  with  the 
debtor.  You  think  it  hard  that  the  evil  which  your 
predecessor  did  should  live  after  him,  and  be  visited 
upon  you.  ' 

The  business  conscience  of  Oxborough  is  evidently 
deficient  in  tone,  and  needs  a  corrective ;  and  this  you 
can  administer  best,  by  the  simple  process  of  making  no 
more  bad  debts.  Instead  of  furnishing  your  detractors 
with  periodical  occasion  for  rejoicing,  you  will  thus  put 
their  malice  to  diet  on  emptiness,  and  achieve  a  lawful 
revenge.  Happy  are  they,  says  Benedick,  that  can  hear 
their  detractions,  and  put  them  to  mending. 


LETTER    X 

BANKRUPTCY. 

If^  like  an  ill  venture^  it  come  unluckily  home,  I  break  ;  and 
you,  my  gentle  creditors,  lose.  .  .  .  Bate  me  some,  and  I  will  pay 
you  some,  and,  as  most  debtors  do,  profnise  you  infinitely. 

Epilogue  to  Henry  IV.  Part  a. 

It  is  right  on  principle  that  a  man  should  reduce  his 
account  on  the  very  day  he  covenanted  to  do  so ;  but  it 
is  not  incumbent  on  you  to  serve  him  with  a  notice  in 
bankruptcy  on  the  very  morrow  of  his  default.  He  may 
have  failed  to  keep  his  promise  through  the  default  of 
others.  You  will  at  least  give  him  a  hearing  before  you 
hand  him  over  to  the  rigours  of  the  law.  If  Black  has 
died  penniless,  with  a  balance  against  him  on  your  books 
of  some  £20,  and  his  principal  assets  consist  of  the  beds 
his  widow  and  children  lie  upon,  I  conclude  that  you  will 
rather  write  the  debt  off  as  bad,  than  sell  the  forlorn 
creatures  up — on  principle. 

You  remind  me  that  I  have  urged  that  the  scope  for 
the  feelings  in  banking  is  limited.  That  is  true.  I  held 
and  still  hold  that  you  do  not  lend  money,  neither  do  you 
recall  it,  in  obedience  to  the  emotions.  If  men  are  en- 
titled to  credit,  you  give  it  to  them  ;  if  they  are  not,  you 
refuse  it.  If  they  are  able  to  pay  you  back  and  will  not 
do  so,  then  put  the  law  upon  them  without  scruple  and 
without  remorse.  I  was  not  referring  to  the  slippery 
customer  who  has  sufficient  means  to  pay  his  debts,  but 
a  persistent  repugnance  to  doing  so.  There  need  be  nc 
parleying  with  defaulters  of  this  type ;  the  shortest  rope 
of  procedure  will  be  long  enough  for  them.  My  remark 
had  reference   solely  to  the   involuntary  and  helpless 


t«T.  X.)  Bankruptcy,  65 

debtor — to  cases  where  the  quality  of  mercy  would  yield 
a  preferable  result  to  the  pound  of  flesh. 

It  is,  no  doubt,  possible  to  be  over  abrupt  in  calling  up 
an  advance.  If  it  has  existed  for  years,  and  the  borrower 
has  had  no  reminder  that  it  might  be  called  up  at  any 
time,  he  has  just  ground  for  complaint,  if,  without 
reasonable  notice,  you  peremptorily  demand  repayment 
of  the  money.  If  by  this  course  you  drive  him  to 
extremity,  and  compel  him  to  file  his  petition,  and  it 
turns  out  that  he  was  in  a  position  to  pay  everybody 
twenty  shillings  in  the  pound,  but  for  your  insistance, 
you  will  have  aroused  the  enmity,  not  only  of  the  debtor 
himself,  but  of  all  his  friends,  and  the  business  of  the 
Bank  might  thereby  suffer  detriment.  A  bank  that 
should  acquire  the  reputation  of  forcing  solvent  people 
into  the  Gazette  would  certainly  lessen  the  number  of 
its  better  class  of  applicants  for  advances. 

Nothing  more  retards  the  progress  of  a  bank  than 
unpopularity;  nothing,  on  the  other  hand,  brings  it  a 
steady  accession  of  business  with  more  certainty  than  its 
standing  well  with  the  community.  The  bank  which  has 
the  good  will  and  the  good  word  of  every  one  is  sure  to 
make  progress.  But  to  insure  this  kind  of  popularity,  it 
must  be  incapable  of  harsh  dealing.  It  must  not  be 
over-grasping  or  too  insistent  in  every  case  upon  its  exact 
legal  right — the  strict  letter  of  its  bond.  In  banking,  as 
in  other  things,  there  is  a  law  within  the  law :  and  that 
bank  will  do  best  for  itself  and  its  shareholders  which 
can  at  times  be  generous  as  well  as  just. 

Where  an  advance  therefore  has  existed  for  years,  it 
will  be  politic,  as  well  as  just,  to  give  reasonable  time  for 
its  repayment,  provided  the  advance  be  fully  covered  by 
security.  Even  in  cases  where  no  security  is  held,  it 
may  be  expedient  to  exercise  forbearance,  when  the 
customer  can  satisfy  you  beyond  a  doubt  that  his  estate 
would  yield  a  substantial  surplus,  even  under  a  forced 
realisation.  But  when  he  cannot  assure  you  of  this,  and 
is  obviously  in  difficulties,  or  drifting  towards  them,  the 
sooner  his  affairs  are  taken  in  hand  by  his  creditors,  the 

V 


66  The  Country  Banker,  Ilkt.  z. 

better  for  himself  and  them.  Beware  of  *  nursing  *  the 
account  of  a  needy  customer,  whose  solvency  you  have 
the  slightest  reason  to  doubt,  however  confidently  he 
may  affirm,  or  seek  to  prove,  that  a  little  more  help  will 
see  him  through. 

It  is  in  the  nature  of  a  man  in  difficulties  to  take  a 
sanguine  view  of  his  position.  Do  not  let  him  persuade 
you  to  look  at  matters  through  his  spectacles  :  use  your 
own  eyes.  By  using  his,  you  may  be  induced  to  place 
yourself  in  his  position,  adopt  his  liabilities,  and  be 
morally  fathered  with  his  delinquencies.  Neither  be 
persuaded  into  paying  other  creditors  off  who  are  press- 
ing him,  from  a  fear  that  their  persistence  may  embarrass 
him  and  imperil  your  own  debt.  You  will  not  improve 
your  position  by  letting  them  out  and  yourselves  further 
in.  When  a  man's  affairs  get  into  confusion,  it  is  not 
the  business  of  a  bank  to  provide  him  with  the  where- 
withal to  pay  the  urgent  in  full,  and  leave  the  less  urgent 
to  take  what  they  can  get.  If  your  debt  has  become 
doubtful,  do  not  add  to  its  amount,  even  on  good  security, 
unless  it  be  rendered  clear  to  you  beyond  all  question, 
that  by  help  of  a  further  advance,  every  one,  yourselves 
included,  will  receive  twenty  shillings  in  the  pound. 

When  the  balance  of  an  account  or  bill  stands  over- 
due, and  the  debtor  has  taken  no  notice  of  your  demand 
for  payment,  more  than  once  repeated,  your  steps  for 
recovery  must  be  prompt ;  otherwise  a  more  energetic 
creditor  may  step  in  before  you,  or  the  defaulter  himself 
may  abuse  your  indulgence,  by  secretly  making  away 
with  what  means  he  has.  Unhappily  there  would  be 
nothing  strange  in  this :  but  even  where  parties  are 
incapable  of  this  form  of  dishonesty,  if  their  affairs  are 
in  a  bad  way,  the  sooner  they  are  wound  up,  the  better 
for  all  concerned,  the  parties  themselves  included.  If 
traders  and  others  were  brought  to  book  at  the  first 
jymptom  of  insolvency,  they  would  be  deprived  of  the 
power  of  dissipating  their  assets  in  satisfying  the  claims 
of  peremptory  creditors,  or  giving  fraudulent  preferences 
to  friends  or  relatives,  or  making  secret  hoards  against 


tET.  X.]  Bankruptcy.  67 

the  rainy  day  to  come.  Their  assets,  if  put  under  arrest 
in  time,  and  placed  beyond  the  reach  of  wasteful  sacri- 
fice and  unlawful  distribution,  would  enable  the  parties 
to  offer  a  reasonable  composition  to  their  creditors,  and 
to  start  afresh,  with  the  help  of  some  and  the  good 
wishes  of  all. 

And  better,  surely,  a  composition  in  almost  any  case 
in  these  days,  than  see  a  small  estate  thrown  into  bank- 
ruptcy, there  to  undergo  the  process  of  liquidation  by 
that  unrivalled  absorbent,  and  see  it  come  forth  again, 
after  many  years,  the  mere  skeleton  and  shadow  of  its 
former  self. 

For  the  helpless  English  creditor,  the  choice  would 
seem  to  lie  betwixt  legal  absorption  on  the  one  hand, 
and  illegal  plunder  on  the  other.  The  dishonest  knave 
who  offers  you  half  your  debt  in  payment  of  the  whole, 
and  who,  you  have  reason  to  suspect,  has  most  of  the 
other  half  hidden  away,  richly  deserves  the  knout ;  but 
there  are  difficulties.  Before  you  can  punish,  you  must 
establish  your  suspicion,  which  may  possibly  be  incapable 
of  legal  proof.  You  may  thus  waste  the  substance  of  the 
estate  and  not  even  scotch  your  snake.  To  punish  a 
fraudulent  debtor  nowadays  involves  the  process  of 
splitting  one's  nose  to  spite  one's  face.  To  put  a  small 
estate  into  the  Court  of  Bankruptcy,  is  to  imperil  all 
chance  of  a  reasonable  dividend ;  so  that  the  much 
enduring  creditor  is  almost  tempted  to  exclaim, — 
Better  ten  shillings  in  the  pound  with  robbery,  than 
bankruptcy  with  nothing. 

Even  the  small  moralists  of  Lilliput  look  upon  fraud  as 
a  greater  crime  than  theft.  "  They  alledge,"  writes  their 
historian,  "  that  care  and  vigilance,  with  a  very  common 
understanding,  may  preserve  a  man's  goods  from  thieves, 
but  honesty  has  no  fence  against  superior  cunning  ;  and, 
since  it  is  necessary  that  there  should  be  a  perpetual 
intercourse  of  buying  and  selling  and  dealing  upon 
credit,  where  fraud  is  permitted  or  connived  at,  or  has 
no  law  to  punish  it,  the  honest  dealer  is  always  undone 
and  the  knave  gets  the  advantage." 

r  • 


68  The  Country  Banker,  [let.  r. 

The  Comptroller  in  Bankruptcy,  in  his  report  for 
i88i,gives  the  total  of  bankruptcies  for  that  year  as 
9727.  Of  these  1 5  per  cent,  paid  dividends  of  two  and 
sixpence  each  and  upwards  :  24  per  cent,  paid  dividends 
ranging  from  two  and  sixpence  each  downwards  to  two- 
pence halfpenny :  whilst  61  per  cent,  of  the  whole — sixty- 
one  estates  out  of  every  hundred — paid  nothing  at  all, 
but  vanished  bodily  and  for  ever  from  the  sight  of  men. 
To  the  eyes  of  English  creditors  wistfully  expectant  of 
dividends,  the  portals  of  our  Court  of  Bankruptcy  might 
aptly  bear  the  inscription  on  that  other  place  of  shadow? 
— Abandon  hope  all  ye  who  enter  here. 

Such  being  our  experience  of  bankruptcy,  as  a  machine 
for  the  realization  and  distribution  of  insolvent  estates, 
it  has  occurred  to  many  that  the  less  we  have  to  do 
with  it  the  better.  Some  would  even  go  the  length  of 
abolishing  it  altogether  and  making  a  fresh  start  But 
this  is  not  the  view  of  others,  who  have  given  much 
thought  to  the  subject,  and  whose  capacity  of  judgment 
is  unimpeachable.  They  believe  that  the  working  of  the 
institution  can  be  improved.  Its  present  machinery  is  a 
labyrinth  of  complication,  a  cover  for  fraud,  a  very  sink 
for  costs,  and  a  contrivance  for  procrastination  and  delay 
only  rivalled  by  the  Court  of  Chancery  itself.^ 

It  is  the  intention  of  the  new  Act,  and  the  hope  of  its 
authors,  to  change  all  this.  Nevertheless,  even  under 
it,  every  estate  of  the  value  of  ;^300  and  upwards  may, 
by  possibility,  at  one  stage  or  another,  engage  the  atten- 
tion of  the  Chief  Judge,  or  the  services  of  the  Official 
Receiver,  the  creditors'  trustee,  the  committee  of  inspec- 
tion, and  the  auditors  of  the  Board  of  Trade. 

It  will  appear  to  some  that  to  subject  the  liquidation 

1  The  Bankruptcy  Act,  1890,  the  Bankruptcy  and  Deeds  of 
Arrangement  Act,  19 13,  and  the  Bankruptcy  Act,  191 4  (which  prac- 
tically consolidated  the  Act  of  1883 — ^the  '  new  Act '  here  referred 
to — and  the  Acts  of  1890  and  1913)  have  removed  many  of  the 
anomalies  of  which  the  author  complains  and  have  considerably 
simplified  bankruptcy  procedure. 


LET.  X.]  Bankrupuy,  69 

of  a  small  estate,  even  to  the  action  of  this  modified 
apparatus,  is  suggestive  of  breaking  a  fly  upon  the 
wheel. 

rhe  new  Act,  if  successful,  will  largely  increase  the 
transactions  of  the  Court,  and  the  moneys  of  bankrupt 
estates  in  its  hands.  The  balances  of  provincial  insol- 
vencies have  heretofore  been  kept  with  the  local  banks  ; 
but  these  institutions  will  no  longer  have  the  exclusive 
use  of  these  moneys,  to  lighten  the  inconvenience  and 
pressure  which  arise  from  local  failures.  Under  the  new 
Act,  they  will  have  a  formidable  competitor  in  the 
Government  itself,  for  the  holding  of  these  funds  in 
future.  It  is  in  fact  virtually  provided  that  the  funds 
shall  in  every  case  go  to  the  Bank  of  England,  unless 
the  creditors  shew  cause  to  the  contrary.  How  often 
they  will  take  the  steps  required  to  shew  cause,  and  how 
often  they  will  prevail  upon  the  Board  of  Trade  to  allow 
the  funds  of  an  insolvent  estate  to  be  banked  on  the 
spot,  has  yet  to  be  seen. 

It  is  too  late  to  raise  the  question  whether  a  simpler 
method  of  dealing  with  insolvency  might  not  have  been 
devised.  The  evils  of  the  old  system  were  manifold  and 
flagitious.  Let  us  hope  that,  in  our  haste  to  rid  our- 
selves of  these,  we  have  not  created  others  instead  ;  and 
that  in  avoiding  Scylla  we  have  not  chanced  upon 
Charybdis.  One  thing  is  certain,  whatever  the  end  may 
be :  in  casting  off  the  *  unspeakable  Trustee,*  we  have  put 
ourselves  under  the  heel  of  the  Board  of  Trade. 


^  LETTER   XL 

TRADE    BILLS. 

Mistrust  no  man  without  cause^  neither  be  thou  credulous 
without  proofs  ;  be  not  lyght  to  follow  every  man^s  opinion,  nor 
obstinate  to  stande  in  thine  owne  conceipt.  Euphues. 

When  your  client,  Mr.  Vincent  Cartridge,  the  paper 
manufacturer,  offers  you  for  discount  his  bill  for 
£2^6  lis.  4d  at  three  months*  date,  on  Messrs.  Booker 
&  Co.,  of  Birmingham,  wholesale  stationers,  he  proposes 
a  transaction  which  you  could  dispose  of  at  a  glance,  if 
it  were  the  only  bill  betwixt  the  parties  which  you 
would  hold,  and  neither  of  the  obligants  were  under 
any  other  liability  to  the  Bank.  In  that  case,  you 
would  merely  have  to  satisfy  yourself  as  to  the  respon- 
sibility of  drawer  and  acceptor.  If  that  were  unquestion- 
able, you  would  discount  the  bill :  if  it  were  not,  you 
would  decline  the  transaction. 

But  this  is  not  the  only  bill,  by  a  good  many  thousand 
pounds,  which  you  would  hold  from  Mr.  Cartridge, 
neither  will  the  present  be  his  first  and  only  draft  on 
Booker  &  Co. ;  there  are  already  several  of  them  in  your 
hands.  You  cannot  deal  with  the  bill  now  offered, 
therefore,  as  an  isolated  transaction,  but  as  forming  a 
portion  of  a  larger  liability. 

And  in  taking  the  measure  of  this  liability,  it  is  not 
enough  to  look  at  its  mere  total,  or  to  be  satisfied  with 
the  individual  safety  of  the  various  obligants  on  the  bills. 
There  may  be  other  features  in  a  man's  account  and 
bills,  in  which  you  may  detect  matter  for  question,  and  in 
•espect  of  which  you  may  require  enlightenment. 

In  evidence  of  this,  let  us  take  the  account  of  a  former 


UBT.  XI.]  Trade  Bills.  71 

client  of  your  Branch,  Mr.  Philip  Bargood.  The  history 
of  his  trading  is  written  in  your  books  with  much  clear- 
ness and  force  to  those  who  care  to  read  it.  The  leading 
facts,  indeed,  may  be  said  to  be  set  forth  in  capitals. 

Mr.  Bargood  commenced  business  in  18 —  with  a 
capital  of  ;^5cxx).  For  the  first  two  years,  he  carried  on 
a  moderate  trade,  and  bought  nothing  on  credit  But  in 
the  third  year  he  began  to  'extend' ;  he  became  still  more 
extended  in  the  fourth,  and  in  the  fifth  year  reached 
a  degree  of  inflation  which  rendered  eventual  explosion 
inevitable. 

The  considerable  balance  which  stood  at  his  credit 
with  you  for  a  good  portion  of  the  first  two  years, 
becomes  rapidly  diminished  in  the  third,  disappears 
altogether  in  the  fourth,  and  in  the  fifth  year  is  replaced 
by  a  balance  against  him.  His  acceptances,  mean- 
while, exhibit  a  corresponding  swiftness  of  growth  in 
number  and  amount.  He  no  longer  buys  for  cash  ;  he 
buys  on  credit,  and  accepts  for  everything.  His  bill 
account  shares  in  the  general  tendency  of  his  affairs  tr 
expansion,  and  shews  a  large  and  rapid  increase.  Mr. 
Bargood,  whilst  availing  himself  to  the  full  of  his  own 
credit,  is  giving  credit  far  and  wide  to  other  people. 

But  apart  from  these  leading  features  of  the  account, 
there  are  minor  incidents  to  be  noted,  the  significance  of 
which  alone  might  have  opened  Mr.  Littleworth's  eyes 
to  the  headlong  course  along  which  Bargood  was  hurry- 
ing. To  those  who  have  the  capacity  and  the  will  to 
look,  there  are  *  eye-openers '  to  be  met  with,  even  in  a 
bank  ledger,  although  not  of  a  mirthful  cast.  They  incite 
the  observer  rather  to  wide-eyed  and  angry  astonishment. 

The  amount  of  bills  drawn  by  Bargood  on  Laxey  & 
Co.,  for  example,  ought  to  have  challenged  attention. 
Instead  of  being  drawn  to  the  extent  of  a  few  hundreds 
in  all,  which  was  their  original  and  sufficient  limit,  they 
came  in  the  end  to  be  drawn  for  as  many  thousands. 

But  if  the  increase  in  the  total  of  these  bills  held  no 
warning  in  it  for  your  predecessor,  the  regularity  with 
which  each  was  discounted,  a  few  days  before  another  of 


72  TJie  Country  Banker,  [lef.  xi. 

similar  amount  became  due,  ought  to  have  awakened 
him  to  the  fact  that  the  paper  on  Laxey  &  Co.  was  being 
kept  afloat  by  a  series  of  renewals. 

Nor  is  this  all.  There  appears  amongst  Bargood's 
acceptances  an  occasional  one  to  Laxey  &  Co.,  thus 
indicating  the  existence  of  cross-paper  between  the 
parties.  Whilst  Bargood  at  Oxborough  was  raising 
money,  by  drawing  fictitious  bills  on  Laxey  &  Co. — bills 
for  'value  received'  in  nothing — they,  on  their  part,  were 
hocussing  their  bankers  with  bills  drawn  by  them  on 
Mr,  Philip  Bargood  for  a  like  consideration.  It  never 
occurred  to  Mr.  Littleworth  that  these  bills  were  being 
manufactured,  simply  to  raise  the  wind ;  still  less,  that 
they  would  be  represented  by  that  element  alone,  when 
the  wrecks  of  the  two  estates  came  to  be  marshalled  for 
final  distribution. 

On  5th  January,  i8 — ,  to  refer  once  again  to  the 
account,  you  will  find  a  debit  of  unusual  amount — ^To 
A.  B.,  ;f  1500.  A  few  months  later  on,  this  mysterious 
payee  figures  for  another  ;^i5oo;  and  once  again  a 
cheque  in  his  favour  for  a  similar  sum  is  debited.  Now 
the  other  cheques  drawn  upon  the  account,  from  first  to 
last,  are  of  moderate  amount ;  in  no  instance  exceeding  a 
few  hundred  pounds.  These  abnormal  debits,  therefore, 
would  have  justified  the  inference  that  they  represented 
transactions  lying  outside  the  regular  course  of  Bargood's 
business.  And  why  drawn  in  blank  ?  His  other  cheques 
are  openly  drawn  in  favour  of  somebody,  or  in  payment 
of  something ;  but  who  was  A.  B.,  and  why  his  initials 
only,  and  not  his  name  ? 

The  dark  horse — the  A.  B.  of  the  cheques — ^was,  of 
course,  Mr.  Bargood  himself. 

The  money  went  into  a  mine,  which  he  and  his 
co-adventurers  ardently  believed  would  prove  a  second 
Golconda,  and  make  village  Rothschilds  of  them  all ; 
whereas,  the  mine  proved  to  be  only  rich  in  water.  It 
yielded  that  in  fathomless  quantity ;  the  pumps  were 
worked  night  and  day  for  years,  and  the  shareholders 
were  pumped  out,  but  the  water  never. 


LET.  XI.]  Trade  Bills,  73 

When  Bargood  came  to  a  stoppage  and  final  break- 
down, and  the  facts  which  we  have  glanced  at  became 
known  to  the  Directors,  Mr.  Little  worth  was  allowed  to 
resign  the  position  which  you  now  occupy. 

The  moral  to  be  drawn  from  his  experience  is  this — 
that  the  manager  of  a  Branch,  to  be  fit  for  his  position, 
must  look  deeper  into  a  customer's  account,  from  time  to 
time,  than  merely  at  the  balance  at  its  debit,  or  the  sum 
of  its  activity.  He  must  read  between  the  lines,  now  and 
then.  The  man's  balance  may  be  in  order,  and  his 
bills  within  their  authorized  total ;  but  the  Manager  is 
not  therefore  to  shut  his  eyes  to  every  other  feature  of 
the  account,  until  certain  of  its  aspects  become  so 
ominous,  that  they  are  challenged  from  head-quarters. 
The  Manager  has  the  supreme  advantage  of  being  on 
the  spot.  Every  transaction  on  every  account  is  open 
to  his  inspection  from  day  to  day.  He  has  opportunities, 
therefore,  which  your  chief  Manager  and  Directors  have 
not,  of  detecting  those  irregularities  which  indicate  the 
departure  of  a  man  from  the  straight  line  of  his  busi- 
ness, and  are  often  the  incipient  symptoms  of  in- 
solvency. 

Had  Mr.  Littleworth  thus  supervised  the  account  and 
bills  of  Philip  Bargood,  and  drawn  the  attention  of  the 
directors  to  any  one  of  these  irregular  or  disquieting 
transactions  as  it  arose,  the  curb  would  have  been  applied 
in  time,  and  Bargood  saved  from  ruining  himself  and  a 
score  or  two  of  other  people,  as  well  as  from  landing 
the  Bank  in  a  serious  bad  debt 

You  suggest  that  Mr.  Bargood,  instead  of  retiring  his 
acceptances  to  Laxey  &  Co.  through  his  account  at 
Oxborough,  might  have  done  so  through  some  other 
bank,  and  have  thus  effectually  concealed  from  Mr. 
Littleworth  and  everybody  else  the  fact  of  their  being 
renewals.  That  is  true  ;  but  the  difficulty  would  have 
been  to  find  a  bank  in  all  England  that  would  transact 
this  more  than  questionable  description  of  business. 

You  are  distinctly  required,  by  your  code  of  instruc- 
tions, to  refuse  to  advise  or  take  up  the  drafts  or  accep- 


74  The  Country  Banker,  [let.  xi. 

tances  of  any  but  your  own  customers.  This  is  only  in 
pursuance  of  an  old  principle  of  English  country  bank- 
ing, that  a  man  should  only  have  one  banker. 

Many  years  ago,  it  is  true,  a  bank  took  up  for  some 
years  running,  for  a  man  who  did  not  bank  with  it,  his 
drafts  upon  a  distant  acceptor.  When  it  transpired,  at 
last,  that  the  bills  thus  provided  for  as  they  fell  due 
were  a  series  of  forgeries,  which  the  drawer  had  dis- 
counted with  his  own  bankers,  and  which  the  other 
bank  had  thus  enabled  him  to  keep  afloat,  it  became 
apparent,  that  a  departure  from  sound  banking  usage 
had  betrayed  one  bank  into  rendering  a  felony  possible, 
which  resulted  in  the  plundering  of  another  bank  of 
many  thousand  pounds. 

In  applying  the  various  tests  which  are  suggested  by 
the  instructive  account  of  Mr.  Bargood,  to  the  draft  of 
Cartridge  on  Booker  &  Co.,  the  fate  of  which  is  still  in 
abeyance,  you  may  find  that  the  paper  under  discount  to 
Cartridge  is  already  at  the  highest  point  sanctioned  by  the 
Directors.  Or  it  may  be,  that  the  acceptances  of  Booker 
&  Co.,  already  in  your  hands,  have  reached  an  amount 
beyond  which  you  are  unwilling  to  go.  Or,  again,  it  may 
happen  that  a  bill  for  the  same  amount,  between  the  same 
parties,  is  about  due  ;  which  might  imply,  although  not 
necessarily,  that  the  bill  now  offered  is  a  renewal.  It 
may  be  drawn  against  an  entirely  fresh  transaction,  to 
which  it  has  merely  a  chance  nearness  in  amount  The 
drafts  of  Bargood  on  Laxey  &  Co.  were  not  open  to  this 
construction.  They  were  so  uniformly  alike,  in  point  of 
date  and  amount,  for  several  years  running,  as  to  pre- 
clude the  idea  of  accidental  likeness  or  fortuitous 
identity.  Or,  finally,  you  may  have  remarked  amongst 
the  bills  retired  by  Cartridge  a  stray  acceptance  of  his 
to  Booker  &  Co. — a  circumstance  which  could  not  be 
accidental,  and  would  have  to  be  challenged  forthwith. 

It  may  be,  that  the  Bookers  make  it  part  of  their 
business  to  purchase  rags  for  Cartridge  and  to  draw 
upon  him  for  the  cost.  To  this  there  would  be  no  objec- 


LBT.  XI.]  Trade  Bills,  75 

tion,  so  long  as  the  bills  were  drawn  against  actual  trans- 
actions :  but  this  system  of  reciprocal  drawing  is  open  to 
flagrant  abuse,  as  we  shall  have  occasion  to  see  by-and-by. 

But  let  us  assume  that  the  draft  of  Cartridge  on 
Booker  &  Co.  has  been  subjected  to  the  tests  which  we 
have  indicated,  and  that  it  has  successfully  run  the 
gauntlet  of  objection.  You  can  now  address  yourself 
to  the  fundamental  question  of  safety,  with  a  mind  at 
rest  on  all  side  issues  and  outlying  points  of  doubt. 

And  first,  as  regards  the  acceptors.  You  find  a 
satisfactory  account  of  them  in  the  confidential  character- 
book  of  the  Branch  ;  but  it  is  open  to  the  objection  that 
the  record  is  now  some  years  old. 

Without  disparagement  to  Messrs.  Booker  &  Co.,  it  is 
allowable  to  conceive  that  a  firm,  which  was  safe  and 
sound  a  few  years  ago,  may  not  be  in  the  same  position 
now.  Every  kind  of  business  is  subject  to  occasional 
loss,  and  as  a  rule  the  loss  is  borne  in  secret  No  one  is 
in  haste  to  proclaim  his  trading  mishaps  from  the  house- 
top. They  may  be  known  or  suspected  on  the  spot,  but 
the  knowledge  will  not  necessarily  travel  far  beyond  it. 
You  know,  because  you  have  the  means  of  knowing 
in  several  ways,  how  people  thrive  in  business  in 
Oxborough  ;  but  you  cannot  exercise  this  supervision 
in  the  case  of  persons,  who  are  following  their  avocations 
in  distant  towns  and  far-away  cities. 

If  Hobson  of  Oxborough  has  made  a  mess  of  it  in 
something,  you  are  more  than  likely  to  hear  of  it, 
although  he  may  not  speak  of  it  himself,  nor  put  it 
in  the  newspapers :  but  if  Trevithick  of  Penzance,  or 
Macpherson  of .  Cromarty,  has  been  quietly  going  to 
the  bad  in  business,  the  fact  will  not  necessarily  reach 
Oxborough  at  all. 

It  follows,  that  the  opinions  which  you  have  received 
as  to  the  position  of  acceptors  or  others  out  of 
Oxborough,  will  require  frequent  revision.  You  are  not 
to  await  the  on-coming  of  a  general  crash,  before  you 
commence  the  revisal  of  your  register;  otherwise  yon 


76  The  Country  Banker,  [lit.  xi. 

may  find  a  score  or  two  of  its  reputations  in  the  Gazette, 
before  you  have  run  your  pen  through  records  concern- 
ing them  of  fabulous  misconception. 

And  now,  as  regards  the  safety  of  the  parties  for 
whom  you  discount  bills.  The  drawer  and  indorser  of  a 
trade  bill  is  ordinarily  the  same  individual,  as  in  the 
present  case.  Mr.  Cartridge  draws  on  Booker  &  Co., 
and  indorses  the  bill  to  you,  and  you  consider  him  good 
for  ten  times  the  amount  of  the  bill.  This  would  be 
conclusive  of  the  whole  matter,  if  the  bill  now  offered 
were  the  only  bill  you  would  hold  of  his  :  but  you  already 
hold  Cartridge's  drafts  upon  a  variety  of  people,  to  the 
considerable  total  of  ;^  1 0,000. 

You  report  the  whole  of  his  bills  as  good  on  their 
merits :  that  is  to  say,  as  being  drawn  upon  acceptors 
believed  to  be  able,  in  every  case,  to  meet  the  bills  as 
they  mature.  But  acceptors  do  fail  at  times,  although 
their  selection  has  been  the  subject  of  diligent  inquiry 
and  the  utmost  circumspection  beforehand. 

It  is  difficult  to  estimate  the  exact  amount  of  risk 
which  thus  attaches  itself  to  Cartridge's  indorsements ; 
but  the  risk  is  not  the  less  real,  because  it  is  not 
presentable  in  exact  figures. 

The  question  remains — will  the  ;^25oo,  which  you 
consider  him  good  for,  provide  a  sufficient  margin  for 
this  contingent  risk  ?  A  rough  method  of  answer 
will  be  found  in  a  synopsis  of  his  bills  current.  Place 
those  which  are  beyond  all  doubt  in  one  column,  those 
which  are  considered  safe  in  a  second,  and  the  weaker 
bills  in  a  third  ;  and  let  us  assume  that  we  have  the 
following  figures  as  a  result : 

First  Class ;^5,ooo 

Second  „  4,000 

Third     » 1,000 

;flO,000 


LIT.  xi.i  Trade  Bills.  77 

Take  the  first  class  at  20J.,  the  second  at  i*js.  6d,y 
and  the  last  at  los.  in  the  pound  ;  and  Cartridge  would 
stand  to  suffer  a  conjectural  loss  of  ;^iooo  on  the 
whole.  That  would  be  the  measure  of  your  floating 
risk  on  his  bill  account. 

The  factors  here  used  are  purely  arbitrary  ;  they  may 
be  put  higher  or  lower,  as  circumstances  may  direct :  but 
the  method  of  the  computation,  although  it  will  not 
furnish  you  with  figures  of  precision,  will  at  least  enable 
you  to  form  a  rough  estimate  of  the  risk  you  are  running 
with  any  given  batch  of  bills  discounted. 

And  the  amount  of  this  risk,  by  whatsoever  process  it 
is  arrived  at,  has  to  be  looked  upon  as  forming  a  mental 
addition  to  the  overdraft  of  the  customer,  or  a  deduction 
from  the  balance  at  his  credit,  as  the  case  may  be. 

But  in  addition  to  bills  drawn  by  Cartridge  on  other 
people,  you  hold  £  1 000  in  bills  drawn  by  other  people 
upon  him. 

Now  a  banker,  as  a  rule,  would  rather  not  keep  both 
sides  of  a  man's  account.  If  he  discounts  a  customer's 
bills  to  an  agreed-on  total,  he  would  rather  not  be 
weighted  with  his  acceptances  as  well :  because,  for  one 
reason,  the  safety  of  the  drawers  of  these  bills  may 
not  in  all  cases  be  without  question.  The  people,  for 
instance,  who  draw  upon  Mr.  Cartridge  for  rags  collected 
and  delivered  are  for  the  most  part  of  small  means, 
and  could  not  take  up  his  acceptances  which  you  have 
discounted  for  them,  should  he  himself  fail  to  do  so.  In 
estimating  your  position  with  him  as  a  whole,  therefore, 
you  have  to  look  upon  such  weak  bills  as  little  better 
than  so  much  overdraft  without  security. 

It  is  true  that  you  may  thus  find  yourself  in  a  diffi- 
culty. If  you  allow  his  margin  for  discounts  to  be  par- 
tially absorbed,  by  transactions  of  which  he  is  ignorant, 
he  will  have  just  cause  for  complaint ;  on  the  other  hand, 
if  you  refuse  to  discount  his  acceptances,  by  whomsoever 
drawn  or  presented,  you  may  seriously  damage  his 
credit. 


78  The  Country  Banker,  [Lrr.  xi. 

The  only  means  of  escape  from  the  horns  of  this 
dilemma  would  seem  to  be — never  to  get  between  them. 
Let  there  be  a  distinct  understanding  with  every 
customer,  from  the  outset,  that  you  must  treat  such  of 
his  acceptances  as  are  brought  to  you  for  discount  as  an 
addition  to  his  liabilities  on  bills,  where  the  drawers  are 
good ;  and  as  so  much  overdraft,  where  they  are  weak. 
If  this  be  clearly  understood,  your  customers  will  see 
the  unwisdom  to  which  some  persons  are  addicted,  of 
sending  their  acceptances  to  their  own  bankers  to  be 
discounted,  especially  if  the  drawers  are  weak. 

If  you  have  any  difficulty  with  my  paper  at  your 
Bank,  says  Bounderby,  try  mine  :  I  flatter  myself  you 
will  find  it  all  right  there.  Although  Mr.  Bounderby, 
by  this  advice,  may  seek  to  magnify  his  own  credit 
in  the  eyes  of  drawers  from  a  distance,  his  intention 
towards  the  Bank  is  entirely  friendly.  He  believes  he  is 
doing  you  a  good  turn,  and  is  without  a  suspicion  that 
he  is  thereby  running  up  a  secret  score  in  your  bill 
ledger  against  himself 

We  have  now  gone  the  round  of  inquiry,  to  which  the 
bill  of  Cartridge  on  Booker  &  Co.  has  given  occasion, 
and  you  are  in  a  position  to  regard  the  transaction  in  all 
its  bearings  and  to  deal  with  the  bill  accordingly. 

You  have  a  feeling,  you  remark,  that  your  customers 
would  hardly  await  your  reading  up  of  the  general  sub- 
ject after  the  laborious  fashion  herein  proposed,  before 
giving  them  your  decision.  Probably  not.  They  will 
expect,  and  are  entitled  to  an  immediate  answer,  yes 
or  no.  You  will  therefore  have  to  do  the  reading  up 
beforehand.  You  will  have  to  keep  your  memory  freshly 
posted  up,  from  day  to  day,  on  all  the  points  which  we 
have  had  under  review,  so  that  you  may  have  always  at 
your  fingers'  ends  the  data  whereon  to  rest  the  fate  of 
almost  any  bill  at  a  glance.  The  faculty  of  distinguish- 
ing a  bill  which  is  eligible  and  to  be  desired,  from  one 
which  is  to  be  avoided  and  cast  out,  becomes  developed 
by  cultivation  to  a  degree  bordering  on  instinct 


LETTER    XII. 

LOAN    BILLS   AND    NOTES. 

And  pray ^  sir^  said  my  friend^  do  you  want  all  this  money  f 
Indeed^  I  never  wanted  it  more,  returned  I.  I  am  sorry  for  that, 
cries  the  scrivener^  with  all  my  heart:  for  they  who  want  money 
when  they  come  to  borrow^  will  always  want  money  when  they 
should  come  to  pay.  Citizen  of  the  World. 

The  bill  of  Cartridge  on  Booker  &  Co.  being  now  dis- 
posed of  and  added  to  the  contents  of  your  bill  case, 
your  attention  may  next  be  invited  to  a  discount  opera- 
tion of  quite  another  stamp,  but  of  some  prevalence  in 
the  Eigricultural  districts. 

Mr.  John  Bowdler,  then,  has  looked  in  to  borrow  a 
couple  of  hundred  pounds,  for  a  few  months — he  is  not 
particular  to  a  month;  and  he  proposes  to  draw  for 
the  amount  on  his  friend  and  neighbour,  Mr.  David 
Starkey,  who  accompanies  him.  Not  that  Starkey  owes 
the  money  ;  that  is  not  pretended  :  but  he  has  agreed  to 
go  bail  for  the  amount  without  consideration,  except  that 
of  good  fellowship.  You  know  Bowdler  to  be  a  substan- 
tial man.  He  has  sums  out  at  interest,  he  has  a  low- 
rented  farm,  a  valuable  stock,  his  manner  of  living  is 
frugal,  and  his  expenses  are  moderate.  Starkey  also  is 
a  man  of  considerable  means  and  one  infirmity — an 
easy-going  readiness  to  lend  his  name  to  oblige  a  neigh- 
bour. In  short  the  two  men  are  safe  for  many  times  the 
amount  of  the  proposed  bill. 

But  bill  it  is  not,  in  the  strict  sense  of  the  term.  A 
genuine  bill  of  exchange  represents  value  given  by  the 
drawer  and  received  by  the  acceptor :  but  Mr.  Bowdler 
draws  simply  on   Mr.  Starkey  s   good    nature   for   the 


do  The  Country  Banker,  [let.xii 

amount,  and  means  in  due  time  to  pay  the  bill  himself. 
The  document,  it  is  true,  has  the  semblance  of  a  bill. 
It  is  dated  at  Oxborough,  and  drawn  in  regular  form 
for  value  received.  It  is  accepted  by  Mr.  Starkey,  and 
domiciled  at  your  bankers  in  London,  although  it  has  to 
be  confessed  that  he  knows  as  little  about  Bullion  &  Co. 
as  they  do  about  him. 

But  this  counterfeit  presentment  of  a  bill  of  exchange 
would  never  pass  muster  in  Lombard  Street.  However 
cunningly  got  up,  it  would  still  be  Bowdler  on  Starkey 
— *pig  upon  bacon' — to  the  comprehension  of  the 
meanest  capacity  in  the  bill  market. 

Not  that  such  bills  are  never  re-discounted.  In  easy 
times,  when  money  is  a  drug,  they  may  find  discounters 
at  a  price.  But  such  paper  will  become  as  foolishness 
in  the  eyes  of  brokers,  and  as  chaff  before  the  wind, 
in  the  winnowing  of  the  first  monetary  tempest. 

A  further  objection  to  the  class  of  bills  now  under 
review  is  the  irregularity  with  which  they  are  met  when 
due.  Now  the  property  which,  next  to  safety  itself,  raises 
the  bill  of  exchange  to  the  foremost  rank  amongst  bank- 
ing securities,  is  the  certainty  of  its  being  paid  in  money 
the  day  it  matures.  But  on  this  point,  it  has  to  be 
admitted  that  Mr.  Bowdler  is  unreliable. 

When  he  puts  his  name  to  a  bill,  he  determines  its 
currency  by  what  he  calls  a  rough  guess.  If  you  cannot 
let  him  have  the  money  for  six  months,  he  thinks  he  can 
manage  it  in  three — a  month  or  two  either  way  being  of 
no  account  from  his  point  of  view.  His  engagement  to 
meet  the  bill  when  it  falls  due  imposes  no  greater  tie 
upon  his  conscience  than  a  promise  to  visit  a  friend  in 
the  course  of  the  summer. 

A  merchant  is  acutely  sensible  that  he  must  meet  his 
acceptances  to  the  day,  or  hopelessly  blast  his  credit ;  but 
this  is  an  unknown  sensation  to  Mr.  Bowdler.  The  pro- 
cesses of  presentment,  dishonour,  and  noting  for  non-pay- 
ment, are  as  inscrutable  to  him  as  the  order  of  procedure 
in  Chancery.  He  cannot  think  why  there  should  be  so 
much  ado  about  nothing,  and  will  ask  you  almost  with 


urr.  xii.  Loan  Bills  and  Noles.  8i 

heat,  if  you  fancied  him  likely  to  make  a  purposed 
journey  to  pay  the  bill  on  a  particular  day,  when  he  was 
coming  to  Oxborough  Fair  the  Friday  week  following, 
whether  or  not. 

Not  that  it  will  be  always  so  with  Mr.  Bowdler.  It  is 
almost  an  even  chance  that  he  meets  the  bill  a  week  or 
two  before  it  is  due,  as  that  he  takes  it  up  a  fortnight 
afterwards,  and  meanwhile  lights  his  pipe  with  your 
notice  of  dishonour. 

It  is  another  feature  of  this  class  of  bill,  frequently  to 
require  renewal.  The  chief  obligant  and  actual  debtor 
on  the  bill  finds,  or  pretends  to  find,  when  it  reaches 
maturity,  that  he  has  miscalculated  or  been  disappointed, 
or  had  some  unlooked  for  demand  to  meet,  or  has  not 
effected  sales,  or  something  else.  If  you  are  satisfied 
with  the  excuse,  you  will  renew  the  bill ;  provided  always 
that  no  change  for  the  worse  has  arisen  during  its  currency 
in  the  affairs  of  the  borrower  himself,  or  the  other  parties 
to  the  bill 

It  is  usual  to  designate  paper  of  the  description  we  are 
now  discussing,  as  accommodation  bills,  or  *  kites ' ;  but 
if  the  epithet  is  just,  it  must  be  admitted  that  there  are 
diversities  of  kites.  The  draft  of  Mr.  Bowdler  on  his 
friend  Mr.  Starkey,  for  example,  is  not  to  be  placed  on 
an  equality  of  demerit  with  the  bills  of  Bargood  on 
Laxey  &  Co.  In  Mr.  Bowdler's  case  you  knew  the 
transaction  intimately ;  there  was  no  attempt  at  conceal- 
ment ;  but  in  Bargood's  case  there  was  not  only  conceal- 
ment, but  something  that  would  be  deemed  fraud,  under 
any  less  mild  dispensation  than  the  bankruptcy  laws  of 
England.  A  less  obnoxious  term,  such  as  Loan  Bills, 
would  better  express  the  quality  of  Mr.  Bowdler's  paper 
and  its  equivalents. 

But  you  may  be  offered  bills  from  time  to  time,  the 
origin  of  which  may  not  be  so  apparent — bills  which  you 
cannot  *  read.'  When  you  are  offered  a  bill,  let  us  say 
for  ;^95  I  Of.  3^.  drawn  by  Mr.  Skinner,  the  currier,  on 
Mr.    Scales,    the    grocer,    the    question    will    at  once 


82  The  Country  Banker,  [let.  xii. 

suggest  itself, —  What  description  of  value  can  have 
passed  between  the  parties  ?  Mr.  Scales  does  not  deal 
in  shoe  leather,  and  his  personal  consumption  of  that 
article,  even  on  the  extreme  assumption  of  his  being 
his  own  bootmaker,  can  never  have  involved  such  a 
figure  as  is  expressed  in  the  bill.  The  presumption  is, 
that  no  value  has  passed  in  the  transaction,  and  that  the 
value  received  is  purely  a  figure  of  speech.  The  drawer 
and  acceptor,  no  doubt,  intend  to  divide  the  proceeds 
amicably,  share  and  share  alike,  and  to  find  the  money, 
when  due,  on  the  same  principle  of  friendly  regard  and 
mutual  contribution. 

Again, — ^when  a  customer  whose  proper  business,  for 
example,  is  that  of  a  corn  merchant,  offers  you  his  draft 
on  acceptors,  whose  business  is  entirely  out  of  the  path 
of  his  own,  the  same  question  will  arise — Why  is  the  bill 
drawn,  and  against  what  ?  Be  the  acceptor  concerned 
with  coal,  or  cotton,  or  timber,  or  lead,  the  drawer  can 
have  no  l^itimate  dealings  in  such  merchandise.  He 
is  either  having  a  speculation  in  it  on  his  own  behalf,  or 
in  conjunction  with  the  acceptor. 

You  will  know  without  difficulty  how  to  deal  with  bills 
of  this  class;  whilst  the  fact  of  their  existence  will 
enhance  the  interest  with  which  you  will  thenceforth 
regard  the  accounts  of  their  drawers,  particularly  if  their 
balances  happen  to  be  on  the  wrong  side  of  your  ledgers. 

And  whilst  you  are  careful  to  note  on  whom  your 
customers  in  business  draw,  you  will  be  none  the  less 
careful  to  observe  to  whom  they  accept.  You  will  have 
no  difficulty  in  judging  whether  a  man  is  accepting 
against  transactions  which  are  beyond  the  limits  of  his 
proper  business.  You  may  thus  detect  irregularities  at 
their  inception,  and  occasionally  protect  a  customer 
against  himself.  He  will  not  care  to  be  thus  protected 
perhaps :  on  the  contrary,  if  he  is  a  self-willed,  sanguine 
man,  he  will  probably  resent  your  interference  and  close 
his  account  in  dudgeon  :  nevertheless,  it  would  not  be 
without  precedent,  if  he  lived  to  thank  you  in  the  eiiJ, 


LET.  XII.)  Loan  Bills  and  Notes,  83 

and  humbly  make  offer  of  his  custom  back  again.  Re- 
pentant clients  have  had  to  thank  their  banker  before 
now,  for  the  refusal  of  facilities  which,  if  granted,  would 
have  been  their  destruction. 

Akin  in  some  respects  to  Loan  bills,  are  the  promissory 
notes  of  individuals,  which  are  sometimes  discounted  by 
country  banks  against  security.  Regarded  as  negociable 
assets,  they  are  valueless.  You  could  not  rediscount 
them  in  the  most  plethoric  state  of  the  money  market 
In  any  analysis  of  your  financial  position,  for  your 
private  guidance,  therefore,  you  will  have  to  treat  them 
as  forming  an  addition  to  your  overdrawn  accounts, 
rather  than  to  your  bills  of  exchange.  Notes  of  hand 
are  virtually  overdrafts  in  disguise. 

As  in  the  case  of  Loan  Bills,  you  will  not  seldom  be 
asked  to  renew  such  transactions.  If  the  borrower  is  an 
agriculturist,  he  may  desire  to  hold  his  fat  stock  or  his 
grain  for  better  markets  ;  if  a  merchant,  he  may  seek  to 
hold  his  merchandise  over  for  a  like  reason ;  if  a 
borrower  on  shares,  he,  too,  may  be  sanguine  that  prices 
will  improve.  It  is  a  truism  to  remark  that  all  these 
hopes  may  prove  delusive,  and  that  prices  may  go  down 
instead  of  going  up ;  so  that  it  might  well  be  a  greater 
kindness  to  borrowers,  to  oblige  them  as  a  rule  to  realize 
when  their  debts  to  you  mature.  There  is  always  a  risk 
in  being  wiser  than  the  market. 

In  nearly  every  case,  a  banker  will  prefer  a  short  to  a 
long-dated  bill.  In  the  first  place  the  risk  is  less.  In 
the  ordinary  course  of  things,  more  firms  will  give  way 
in  six  months  than  in  three.  It  may  be  affirmed,  without 
disparagement,  that  there  is  always  a  greater  chance  of 
the  first  house  in  England  standing  for  three  months 
than  for  six. 

In  the  second  place,  the  banker,  for  every  one  bill  at 
six  months',  could  discount  two  at  three  months'  date, 
within  the  same  period,  and  with  the  same  amount  of 
money  ;  and  thus  render  his  resources  doubly  available 
to  his  constituency, 

6  S 


84  The  Country  Banker,  [let.  xn. 

Let  us  say  that  the  limit  for  discounts  at  your  Branch 
is  ;£■  50,000.  If  you  invested  the  money  in  bills  with  an 
average  currency  of  three  months,  your  discounts  would 
gross  ;£"  200,000  in  the  year ;  whereas  they  would  only 
reach  half  that  sum,  if  the  bills  had  six  months  to  run. 

Let  us  further  suppose  that,  during  a  monetary 
pressure,  you  have  to  contract  your  discounts,  in  order 
to  meet  a  drain  upon  your  deposits  reaching  ;^5000  a 
month.  Now  if  your  bills  are  all  at  the  longer  date, 
only  £^QQO  of  them  will  reach  maturity  within  the 
month.  To  meet  the  supposed  drain,  therefore,  you  will 
have  to  contract  your  ordinary  discounts  to  customers, 
from  ;^8ooo  to  ;^300O  a  month — an  application  of  your 
financial  brake,  sufficient,  one  would  suppose,  to  throve 
half  the  trading  community  of  Oxborough  on  their  backs. 

But  if  your  bills  were  of  the  shorter  currency,  then 
£iy,QOO  of  them  would  ripen  monthly;  in  which  event 
you  could  meet  the  drain  of  ;^5ooo,  and  still  be  able  t{ 
continue  your  discounts  to  customers,  at  the  rate  of 
;^  1 2,000  a  month.  There  would  be  tightness  even  in 
this  case ;  but  in  the  other  it  would  be  semi-strangulation. 

It  has  also  to  be  considered  that,  in  times  of  commer- 
cial panic  and  money  pressure,  even  A  i  paper,  if  it  has 
six  months  to  run,  ceases  to  be  negociable  in  the 
rediscount  market. 

As  a  matter  of  fact,  no  banker's  bill  case  is  filled 
exclusively  with  either  short  or  long-dated  bills.  The 
most  exclusive  bill  case  must  hold  some  admixture  of 
the  latter.  No  doubt  the  fewer  the  better ;  and  if  the 
proportions  were  as  10  per  cent,  of  long,  to  90  per  cent 
of  short  paper,  the  banker  would  be  perceptibly  nearer 
the  point  of  financial  safety,  than  if  these  proportions 
were  reversed. 


LETTER    XIIT 

NEGOCIABILITY    OF    BILLS. 

//  is  not  by  augmenting  the  capital  of  a  country,  but  by  rendering 
a  greater  part  of  that  capital  more  active  and  productive  than 
would  otherwise  be  so,  that  the  most  judicious  operations  of  banking 
can  increase  the  industry  of  the  country.     Wealth  of  Nations. 

The  transaction  out  of  which  the  draft  of  Cartridge 
on  Booker  &  Co.  arose,  is  one  of  universal  occurrence  in 
the  every-day  course  of  business  and  trade.  Cartridge 
has  sold  and  delivered  to  Booker  &  Co.  certain  goods, 
against  the  invoice  value  of  which  he  has  drawn  this 
bill ;  which  is  at  once  an  acknowledgment  of  debt,  and 
an  undertaking  on  the  part  of  the  acceptors  to  pay  the 
debt  at  the  end  of  three  months. 

But  it  suits  the  arrangements  of  Mr.  Cartridge  better 
to  have  the  use  of  the  money  at  once.  He  therefore  asks 
you  to  give  him  cash  for  the  bill  now — less  interest  or 
discount  on  its  amount,  for  the  time  you  will  be  out  of 
pocket  by  the  transaction.  If  you  decide  to  discount 
the  bill,  the  effect  of  the  operation  will  be  a  virtual 
addition  to  the  working  capital  of  Mr.  Cartridge  for  the 
time  being,  equal  to  the  proceeds  of  the  bill. 

This  fact  of  itself  may  hardly  seem  worthy  of  note  :  but 
when  you  reflect  that  every  bill  thus  discounted  by  a 
bank  becomes  an  addition,  for  the  time  being,  to  the 
working  capital  of  the  country  ;  and  that  the  average  of 
bills  under  discount  in  England  may  be  safely  put  at 
250  millions  of  pounds  sterling,*  the  fact  broadens  into 

*  Mr.  Inglis  Palgrave,  in  his  Notes  on  Banking,  estimates  the  average 
circulation  of  Inland  Bills  at  210  millions,  and  of  Foreign  Bills  at 
141  millions  for  the  United  Kingdom.  It  will  not  therefore  be  an 
excessive  estimate  to  put  the  figures  for  England  alone  at  250  million* 


86  The  Country  Banker,  [let.  xhl 

significance.  If  these  facilities  were  withdrawn,  there 
would  be  that  amount  less  of  business  done  in  the  land, 
in  the  course  of  every  three  months  or  so.  In  other 
words,  that  portion  of  the  business  of  the  country,  which 
depends  exclusively  on  the  discount  of  bills  of  exchange, 
would  have  to  be  curtailed,  other  things  being  equal,  to 
the  extent  of  some  twenty  millions  a  week,  and  suffer  the 
enormous  shrinkage  of  a  thousand  millions  a  year. 

But  the  money  employed  by  the  banks  in  the  annual 
discount  of  this  prodigious  aggregate  of  bills  is  not  their 
own.  It  is  held  by  them  from  multitudes  of  depositors 
at  short  notice,  and  much  of  it  at  call,  and  therefore 
must  be  employed  in  securities  of  negociable  character. 

The  desired  class  of  security  is  chiefly  found  in  bills 
of  exchange  ;  because  they  can  be  negociated  and  con- 
verted into  money  at  all  times,  provided  they  are  accepted 
payable  in  London — but  not  otherwise. 

Messrs.  Booker  &  Co.  make  their  acceptances  to  Mr. 
Cartridge  payable  in  London,  in  accordance  with  English 
usage ;  and  the  whole  of  your  business  clients  do  the 
same,  with  one  or  two  exceptions. 

Mr.  Howard  Bagster  is  one  of  these,  and  is  accounted 
an  authority  in  Oxborough  on  matters  of  finance  and 
currency.  Mr.  Bagster  is  a  provision  merchant  by  trade, 
and  can  distinctly  trace  his  last  failure  to  the  operation 
of  Peel's  Act  and  the  monopoly  of  the  Bank  of  England. 
Hence  his  normal  attitude  towards  banks  and  bankers, 
which  is  inimical.  He  holds  that  all  traders  have  a 
right  to  make  their  acceptances  payable  where  they 
please,  and  that  by  making  them  payable  at  their  own 
shops,  they  save  a  commission  on  retiring  the  bills  when 
due ;  but  that,  as  we  know,  is  a  fallacy.  When  an  accept- 
ance of  Mr.  Bagster  s,  for  example,  nears  maturity,  it  is 
sent  to  you  for  collection  by  the  bank  which  discounted 
it,  and  you  charge  your  usual  commission  for  paying  the 
proceeds  over  in  London.  By  seeking  to  evade  the  pay- 
ment of  one  commission  himself,  therefore,  Mr.  Bagster 
subjects  the  drawer  of  the  bill  to  the  payment  of  two, — 
one  to  his  own  bankers,  and  one   to  you.     That  the 


LET.  XIII.]  Negociability  of  Bills.  87 

drawer  will  ignore  this  fact,  in  adjusting  accounts  with 
Mr.  Bagster,  is  not  within  the  lines  of  business  usage, 
nor  the  limits  of  reasonable  probability. 

But  we  may  let  that  pass  ;  because,  even  if  drawers 
were  found  willing  to  humour  Mr.  Bagster  in  this  caprice, 
at  their  own  expense,  their  bankers  are  not  likely  to 
countenance  a  form  of  eccentricity,  which  is  of  no  advan- 
tage to  the  acceptor  himself,  and  which,  if  unchecked, 
might  render  them,  in  time,  the  holders  of  an  undesirable 
percentage  of  unmarketable  paper. 

There  is  no  law  to  prevent  the  acceptors  of  bills 
making  them  payable  at  their  own  shops,  or  on  their  own 
doorsteps,  or,  for  that  matter,  at  the  Market  Cross,  if  they 
are  so  minded.  It  is  not  a  question  of  law,  or  legal  right, 
but  of  expediency.  The  custom  which  in  England  re- 
quires bills  of  exchange  to  be  made  payable  in  London, 
is  a  necessity  of  its  banking  system.  The  Banks  could 
in  no  other  way  continue  the  daily  use  of  ;^250,ooo,ooo 
of  their  deposits  to  the  public,  in  the  form  of  discounts, 
unless  they  chose  to  disregard  and  imperil  their  own 
stability. 

The  vital  requisite  of  the  securities  in  which  the  Banks 
invest  this  portion  of  their  deposit  money,  is  negocia- 
bility,—the  securities  must  be  readily  convertible  into 
money,  in  case  of  need  ;  and  to  render  bills  of  exchange 
thus  convertible,  they  must  be  payable  in  London,  the 
discount  centre  of  England. 

Bills  not  payable  in  London  are  simply  unmarketable. 
You  could  not  rediscount  them  at  the  Bank  of  England, 
nor  in  all  Lombard  Street,  in  the  easiest  of  times.  They 
are  only  a  shade  more  eligible,  as  banking  assets,  than 
equal  amounts  in  overdrafts  would  be. 

If  every  acceptor  were  to  humour  his  fancy  in  the 
'location '  of  his  bills,  not  only  every  city,  town,  and  village, 
but  every  office,  shop,  and  dwelling-house  in  the  three 
kingdoms  might,  in  turn,  become  points  of  redemption 
for  trade  paper,  and  our  banking  system  would  be  re- 
volutionized. 

To  meet  this  new  condition  of  things,  a  member  of 


88  The  Country  Banker,  [let.xih. 

your  staff  would  have  to  be  on  the  wing,  day  by  day,  from 
street  to  street,  and  shop  to  shop,  and  from  one  dwelling- 
house  to  another,  wherever  the  bills  had  to  be  presented 
for  payment.  In  this  respect,  it  is  true,  he  would  be  no 
worse  off  than  a  telegraph  boy,  or  th«  penny  postman  ; 
but  he  would  have  troubles  of  his  own,  which  happily  for 
them,  they  know  not  of 

If  he  receive  payment  of  a  bill  in  legal  tender,  that  is 
to  say,  in  Bank  of  England  notes,  or  gold  of  standard 
weight — well  and  good  :  there  will  be  nothing  to  charge 
and  nothing  to  discuss.  But  for  the  most  part,  he  will  be 
tendered  in  payment  instead  of  these,  cheques  on  other 
Banks,  Country  notes,  Post  OfBce  orders,  light  gold,  or  ^,S.>se 
silver,  in  varying  proportions.  If  he  declines  to  accept 
these  promiscuous  elements  of  the  circulating  medium  as 
standard  money  of  the  realm,  and  insists  upon  making  a 
charge,  to  cover  the  expense  of  their  conversion  into  legal 
tender,  there  will  be  a  wrangle  in  every  case.  His  pocket 
gold-weigher  will  be  derided,  its  use  contemned,  and  its 
accuracy  disputed.  His  refusal  of  cheques  drawn  on  dis- 
tant Banks,  by  persons  of  whom  he  knows  nothing,  will 
be  resented.  He  will  be  dared  by  some,  at  his  peril,  to 
refuse  the  payment  tendered.  He  will  be  requested  by 
others  to  call  again  later  on.  He  will  have  to  await  his 
turn  at  every  counter,  and  abide  the  reception  which  is 
usually  accorded  to  the  man  who  calls  for  an  account. 

Now  by  the  simple  expedient  of  having  all  bills  made 
payable  in  London,  the  whole  of  this  egregious  waste  of 
time,  trouble,  locomotion,  and  temper  is  avoided.  You 
thereby  create  a  common  centre  of  liquidation,  towards 
which  the  bills  from  all  parts  of  the  kingdom  gravitate  as 
they  become  due,  and  quietly  sink  into  the  great  stream 
of  transactions  which  daily  flows  through  the  London 
Clearing. 

You  have  thus,  instead  of  countless  thousands  of 
scattered  points,  one  central  and  all-sufficient  focus 
of  liquidation ;  and  thus,  bills  in  thousands,  and  repre- 
senting millions  of  pounds  in  the  aggregate,  are  daily 
met,  and  their  separate   amounts   distributed  amongst 


LET.  XIII.]  Negociability  of  Bills,  89 

their  multitudinous  holders,  with  less  friction  than 
would  accompany  your  ambulatory  clerk  in  any  one 
of  his  daily  rounds. 

It  is  not  the  usage,  nor  is  it  the  province  of  a  bank,  to 
wait  upon  the  acceptors  of  bills,  or  upon  the  indebted  of 
the  community  in  general.  It  is  the  business  of  the 
debtors  to  bring  the  money  to  it.  If  a  bank  had  to 
wait  upon  every  customer  who  had  an  acceptance  to 
meet,  an  advance  to  re-pay,  or  money  to  lodge,  or  a 
cheque  to  cash,  there  would  be  a  speedy  end  of  banking 
altogether.  Its  machinery  would  suffer  dead-lock,  and 
its  business  come  to  a  stand-still.  A  hundred  persons,  on 
the  average,  transact  their  business  across  your  counter 
at  Oxborough  every  day,  with  ease  and  mutual  affability  : 
there  is  no  difficulty,  no  wrangling,  and  no  friction.  Mr. 
Coigne,  your  cashier,  is  equal  to  the  work  were  it  twice 
as  much  ;  but  even  if  he  had  the  shoes  of  swiftness,  it 
would  be  impossible  to  reverse  the  operation.  He  would 
enter  upon  it  at  the  disadvantageous  odds  of  a  hundred 
to  one.  The  customers  one  by  one  come  to  him  with 
perfect  ease ;  but  for  him  to  go  to  them,  individually, 
and  transact  every  variety  of  banking  business,  at  a 
hundred  different  points,  in  the  same  day,  would  be  a 
performance  transcending  human  ability. 

Akin  in  one  respect  to  bills  not  payable  in  London, 
are  certain  instruments  known  as  Cash  Orders,  drawn 
by  some  of  the  wholesale  dealers  in  a  few  of  our  larger 
cities,  upon  retail  customers  in  the  smaller  towns,  and 
sent  to  local  banks  for  collection.  Like  locally  accepted 
bills,  these  orders  are  ostensibly  redeemable  at  the  shops 
of  the  parties  drawn  upon. 

But  it  is  not  the  business  of  banks  to  act  as  house-to- 
house  collectors  of  trade  debts.  The  regular  customers 
of  a  bank,  to  whom  it  may  be  supposed  to  be  under 
some  obligation,  do  not  expect  it  to  wait  upon  them 
when  they  have  a  payment  to  make,  a  debt  to  pay,  or 
an  acceptance  to  meet :  they  come  to  the  Bank.  It  is 
hardly  reasonable  therefore  to  expect  you  to  wait  upon 


90  The  Country  Banker,  [lbt.xiii. 

the  parties  on  whom  these  orders  are  drawn,  and  thus 
afford  facilities  to  non-customers,  which  you  do  not 
extend  even  to  your  regular  clients. 

Parties  thus  obligingly  waited  upon,  will  be  able  to 
dispense  with  keeping  bank  accounts.  They  will  make 
treasuries  of  their  tills  and  breast  pockets,  and  become 
their  own  bankers — with  what  advantage  to  themselves 
may  appear  more  clearly  hereafter. 

You  therefore,  on  receipt  of  one  of  these  orders  from 
another  bank  to  collect,  send  notice  to  the  shopkeeper  it 
is  drawn  upon,  that  it  lies  with  you  for  collection,  and 
will  be  sent  back  to  the  drawer  next  day,  unless  taken 
up  in  the  meantime. 

No  doubt  a  lower-salaried  class  of  man  would  suffice 
as  commercial  traveller,^ were  country  banks  to  take  his 
duties  as  collector  and  cashier  off  his  hands  ;  but  whether 
the  saving  thus  effected  by  the  employer  will  balance 
the  resulting  disadvantages  is  at  least  open  to  question. 
'  All  is  not  gain,'  it  has  been  said,  *  that  is  got  io«^ 
the  purse.' 

In  numbers  of  cases,  a  wholesale  house  has  to  depend 
entirely  upon  a  banker's  opinion,  as  to  the  trustworthiness 
of  its  more  distant  customers.  When  the  parties  keer 
bank  accounts,  there  is  little  difficulty  in  obtaining  a 
reliable  opinion :  but  when  they  do  not,  a  banker  has  no 
greater  means  of  knowledge  than  any  other  membei 
of  the  community.  The  creditor,  therefore,  who  assists  a 
customer  in  doing  without  a  bank  account  is  shutting  a 
door  against  himself :  he  is  depriving  himself  of  a  means 
of  information,  which  might  be  of  substantial  service  to 
him  at  times,  and  perhaps  save  him  every  now  and  then 
from  a  bad  debt. 


>  See  note  » to  p.  48, 


LETTER    XIV. 

PERSONAL   SECURITY. 

Be  very  wary  for  whom  thou  hecomest  security^  and  for  no 
more  than  thou  art  able  to  discharge^  if  thou  lovest  thy  liberty. 
The  borrower  is  a  slave  to  the  lender :  the  security  is  a  slave  to 

both.  QUARLIS. 

If  a  Banker  has  a  claim,  in  common  with  any  other 
lender  of  money,  to  have  his  loans  covered  by  security, 
it  follows  that  the  security  thus  taken  ought  to  suffice, 
under  all  circumstances,  to  secure  repayment  of  the 
advance  which  it  is  taken  to  cover.  How  far  this  self- 
evident  proposition  was  present  on  all  occasions  to  the 
minds  of  former  Managers  of  Oxborough  Branch  will 
appear  more  clearly,  as  we  proceed  to  analyse  the  batch 
of  securities,  ancient  and  modern,  which  you  have 
selected  for  discussion. 

You  hold  the  GUARANTEE  of  Mr.  Rolston  to  secure 

repayment  of  advances  to  W S to  the  extent 

of  £  icxx).  The  report  on  this  security  is, — *  Rolston  is 
known  to  be  possessed  of  means  to  the  full  amount  of 
the  guarantee.'  But,  if  Mr.  Rolston  is  not  possessed  of 
means  to  a  much  larger  amount,  the  prudence  of  taking 
him  as  surety  for  such  a  sum  is  more  than  questionable. 

A  man's  'means,'  so  far  as  they  are  available  for 
the  payment  of  another  man's  debt,  can  only  consist  of 
the  surplus  which  his  assets  would  yield,  after  the  dis- 
charge of  his  own  indebtedness.  In  Rolston's  case,  his 
assets  are  set  down  at  ;^6ooo,  and  his  debts  at  ;^4500, 
He  shows  a  capital  or  surplus  therefore  of  ;^I500. 

That  would  be  the  surplus  of  his  business  as  a  going 


9*  The  Country  Banker.  [l«t.  xit 

concern  :  but  both  it  and  he  would  cease  to  go,  the 
moment  you  came  upon  him  for  the  payment  of  £  looo, 
for  which  he  has  had  no  consideration,  and  has  nothing 
whatever  in  hand.  He  must  stop  payment :  in  which 
event  his  surplus  of  ;^  1 500  will  at  once  disappear  and 
be  replaced  by  a  balance  against  him. 

Every  man's  estate,  as  we  have  seen,  has  two  values  : — 
a  value  to  himself,  and  a  value  to  his  creditors  ;  a  value 
before,  and  a  value  after  bankruptcy.  A  trader's  stock- 
in-trade,  his  buildings,  tools,  plant,  and  machinery,  his 
furniture  and  pictures,  are  usually  set  forth  at  cost- 
price,  in  his  balance-sheet,  and  it  would  take  the  same 
money  perhaps  to  replace  them.  But  force  him  into 
bankruptcy,  and  we  know  the  result.  His  estate  and 
effects,  after  passing  through  that  famous  mill,  will  re- 
exhibit  themselves  in  figures  which  it  will  be  hard  to 
reconcile,  and  impossible  to  identify,  with  those  at  which 
they  stood  in  his  books  before  the  grinding. 

In  your  estimate  of  a  surety,  therefore,  the  point  to 
be  kept  in  view  is, — not  what  you  might  be  able  to 
squeeze  out  of  him  by  process  of  exhaustion  ;  but  what 
he  could  at  any  time  pay,  over  and  above  his  other  en- 
gagements, without  serious  inconvenience  or  detriment 
to  himself.  That  is  the  true  measure  of  his  fitness  as  a 
surety;  and  if  you  take  him  for  more  than  this,  you  may 
do  him  a  fatal  disservice,  and  possibly  lay  the  founda- 
tion of  a  bad  debt  for  yourselves.  If  Rolston's  guaran- 
tee had  been  taken  for  ;^  1 50,  instead  of  for  nearly  seven 
times  that  amount,  it  would  have  been  nearer  his  mark 
as  a  guarantor. 

Let  it  be  your  maxim,  therefore,  that  a  man  is  good 
security  to  a  bank  for  a  portion  only  of  what  he  is 
worth — a  portion  which  will  mainly  depend  upon  the 
showing  of  his  balance-sheet. 

You  would  take  the  guarantee  of  Daniel  Hyde,  for 
example,  for  a  larger  sum  than  you  would  that  of  Railton 
&  Co.,  whilst  you  would  decline  to  take  Abel  Trowell's 
guarantee  for  anything  at  all ;  although  each  balance- 
sheet  of  the  three  shows  the  same  amount  of  capital. 


LIT.  xnr.)  Personal  Security,  93 

But  you  will  not  always  have  a  balance-sheet  on 
which  to  base  your  calculation.  You  will  more  fre- 
quently have  to  depend  on  hearsay,  and  the  result  of 
your  own  observation.  In  this  event,  you  will  do  wisely 
to  revert  to  the  rule  which  we  have  already  indicated, 
or  a  modification  of  it. 

Let  us  say,  for  the  sake  of  argument,  that  a  man  will 
be  an  eligible  surety  to  a  bank  for  the  tenth  part  of  his 
reputed  means  ;  let  a  man,  supposed  to  be  worth  £  10,000, 
be  taken  as  individually  safe  as  surety  for  ;^iooo.  I  do 
not  suggest  this  as  an  immutable  divisor  or  rule  of 
estimate.  It  would  be  excessive  in  the  case  of  Mr. 
Hyde  ;  it  would  be  less  than  sufficient  in  that  of  Mr. 
Trowell.  But  in  the  absence  of  authentic  figures,  you 
are  bound  to  protect  yourself  with  an  ample  margin,  by 
subjecting  a  man's  reputed  means  to  the  moderating 
effect  of  a  liberal  divisor. 

Even  by  the  suggested  rule,  a  surety  would  be  ex- 
posed to  the  possible  loss  of  a  tithe  of  all  he  could  call 
his  own — surely  a  sufficient  penalty  for  an  indiscreet  act 
of  good  nature  ?  This  at  least  is  clear  :  that  the  higher 
your  divisor  in  applying  the  rule,  the  lighter  the  strain 
will  be  on  the  resources  of  a  guarantor,  and  the  greater 
the  certainty  and  promptitude  with  which  your  claim 
upon  him  will  be  satisfied. 

It  has  also  to  be  borne  in  mind,  that  the  good  nature 
which  prompts  a  man  to  become  surety  for  a  relative  or 
friend,  is  guided  more  by  the  feelings  than  the  intellect ; 
and  it  thus  happens  that  the  same  friendly  hand  which 
has  signed  a  guarantee  or  indorsed  a  bill  for  A.  may 
have  done  the  like  for  B.  or  C.  or  others.  You  know 
that  Mr.  Bowdler's  bill  is  not  the  only  one  which  bears 
the  indorsement  of  Mr.  Starkey;  but  there  may  be 
others,  who  are  as  free  as  that  philanthropist  with  their 
signatures,  but  less  furnished  with  means. 

A  personal  guarantee,  however  safe  the  guarantor 
may  be  at  the  time  of  its  date,  offers  a  less  stable  form 
of  cover  to  a  bank,  than  the  collateral  security  of  shares 
or  other  property,  because  the  position  of  a  surety  may 


94  2^^  Country  Banker,  [ltt.  xiy. 

change  for  the  worse  without  your  knowledge  ;  whereas 
changes  in  the  value  of  commodities  or  property  take 
place  in  the  sight  of  all  men,  and  you  may  keep  yourself 
advised  from  day  to  day  of  all  movements  in  price.  In 
the  one  case,  the  substance  of  the  security  is  in  your  own 
hands :  in  the  other,  it  remains  in  the  order  and  dis- 
position of  the  guarantor,  to  do  what  he  will  with  it  He 
may  be  a  thriving  man,  and  he  may  continue  to  thrive; 
but  it  is  also  possible  that  he  may  prove  unfortunate :  in 
which  event  you  may  some  day  find  yourselves  the  holders 
of  a  bond,  the  maker  of  which  has  parted  with  his  sub- 
stance and  left  you  to  recover  from  his  shadow  instead. 

You  can  dispose  of  a  marketable  security  at  any  time^ 
and  get  the  money  for  it :  but  to  turn  a  surety  into  cash, 
is  a  less  certain  process,  and  not  always  crowned  with 
satisfactory  results. 

As  regards  annuitants,  professional  men,  life-renters, 
and  all  other  persons  whose  incomes  cease  with  their 
lives,  if  we  found  them  ineligible  as  principals,  we  must 
pronounce  them  equally  ineligible  as  sureties ;  unless 
they  have  inherited,  or  saved  and  set  aside,  during  their 
lives,  sufficient  securities  or  property  to  provide  for  their 
posthumous  liabilities. 

A  man  who  owns  a  property  for  life,  for  example, 
which  brings  him  in  say  £  1 500  a  year,  and  who  requires 
it  all  for  the  expenses  of  his  household  and  the  educa- 
tion of  his  children, — how  is  he  to  repay  the  ;^i5oo 
advanced  on  his  guarantee,  to  some  good-for-nothing 
relative,  without  loading  his  life  interest  with  such  an 
annual  weight  of  charge,  as  will  bring  daily  discomfort 
and  social  privation  to  his  family  and  himself? 

Still  worse :  suppose  a  clergyman  to  become  surety 
for  a  few  hundred  pounds,  the  amount,  it  may  be,  of  his 
whole  year's  stipend,  for  some  pious  and  plausible  rogue, 
and  that  the  unhappy  vicar  has  in  the  end  to  make  good 
the  debt.  In  such  a  case,  if  he  has  no  property  to  fall 
back  upon,  the  result  must  be  either  immediate  ruin,  or 
some  arrangement  for  deferred  payment,  which  will 
make  him  a  struggling  man  for  life. 


LET.  XIV.)  Personal  Security,  95 

Poor  F with  his  salary  of  ^^"250  a  year,  a  wife  and 

half-a-dozen  children,  how  is  he  to  find  the  £200  for 
which  he  became  surety  for  his  brother-in-law,  in  whom 
he  had  a  boundless  faith,  and  who  has  just  filed  his 
petition  and  won't  pay  five  shillings  in  the  pound  ? 

If  therefore  you  would  have  a  business  conscience 
void  of  offence,  you  will  strive  to  minimise,  if  you  can- 
not quite  avert,  such  wretched  possibilities  in  the  future. 


LETTER    XV, 

COLLATERAL    SECURITY, 

He  thai  lendeth  to  all  that  will  borrcnve,  sheweth  great  good 
willf  but  lyttle  witte.  Lend  not  a  penny  without  a  pawne^  for 
that  will  be  a  good  gage  to  borrowe.  Euphues. 

The  samples  of  collateral  security  which  you  have 
selected  for  discussion,  do  not  admit  of  treatment  as  a 
group.  They  are  so  various  in  quality,  and  fruitful  of 
suggestion,  that  it  will  be  necessary  to  deal  with  each 
on  its  merits. 


Deposit  of  Title  Deeds.  You  hold  the  title  deeds 
of  the  farm  of  Greenfields  as  cover  for  an  advance  of 
;^2000  to  the  owner,  Mr.  Miles  Thornton.  Your  pre- 
decessor reports  on  the  transaction  : — '  Mr.  Thornton  is 
needy,  but  the  property  is  amply  worth  ;^25oo.' 

Mr.  Littleworth  does  not  explain  how  he  arrived  at 
this  valuation.  He  may  possibly  have  yielded  to  his 
easy  way  of  looking  at  things,  so  that  it  would  scarcely 
be  a  surprise,  if  the  valuer  in  this  case  should  prove  to 
have  been  Mr.  Thornton  himself. 

As  regards  the  important  question  of  title,  the  deeds 
have  not  been  examined,  it  appears,  by  the  solicitors  of 
the  Bank.  Mr.  Littleworth  was  satisfied  that  the  deeds 
must  be  in  order  and  the  title  perfect,  because  the 
property  had  been  in  the  possession  of  the  Thorntons 
for  more  than  a  century. 

But  this  assumption  might  involve  more  than  one 
serious  fallacy.  It  is  possible,  for  example,  that  the 
property   may  be    subject   to   settlements    and    other 


LKT.  xv.j  Collateral  Security,  97 

charges,  the  instruments  creating  which  need  not 
accompany  the  title  deeds,  nor  be  accompanied  by 
them. 

Again  :  the  name  of  your  client  has  probably  run  in 
the  family  for  generations,  so  that  the  mere  name, — the 
Miles  Thornton  of  the  deeds — may  be  that  of  some 
paternal  ancestor ;  in  which  event,  for  anything  that  Mr. 
Littleworth  knew  to  the  contrary,  Mr.  Thornton  may 
prove  to  be  his  own  grandfather. 

Once  again :  in  the  case  of  so  old  a  title,  it  is  pos- 
sible that  one  or  other  of  the  deeds  may  have  been 
mislaid  or  lost ;  a  fact  of  which  Mr.  Thornton  himself 
may  be  ignorant.  But  such  a  mischance  would  make  a 
flaw  in  the  title,  which  might  render  it  impracticable  for 
you  to  realize  the  property. 

As  a  further  excuse  for  not  having  the  deeds  properly 
perused  by  the  Bank  solicitors,  whereby  all  these  un- 
toward possibilities  would  have  been  set  at  rest,  Mr. 
Littleworth  had  a  feeling  that  Mr.  Thornton  would  not 
have  submitted  to  the  expense.  But  on  this  ground, 
Mr.  Thornton  might  with  equal  reason  have  demurred 
to  paying  interest  on  the  advance.  This  gentleman  came 
to  borrow  £2QQO  from  the  Bank  on  certain  conditions  ; 
one  of  which  was,  that  the  advance  should  be  covered  by 
deeds  of  property  of  sufficient  value.  He  could  not  in 
reason  assume  that  the  Bank  would  take  his  deeds  *  in 
the  lump,'  without  even  looking  at  them,  as  a  security 
of  proved  value.  Would  Mr.  Thornton  have  lent  money 
of  his  own,  on  the  security  of  a  brown  paper  parcel,  pur- 
porting to  contain  deeds  of  sufficient  value  to  secure  re- 
payment of  the  money  lent  ? 

But  Mr.  Thornton  is  an  honourable  man  and  inca- 
pable of  stating  an  untrutli  ?  With  all  submission  that 
is  not  the  question.  There  may  be  a  missing  link  in  the 
title,  as  we  have  said,  without  his  knowledge.  If  instead 
of  deeds,  Mr.  Thornton  had  brought  money  in  a  bag,  and 
stated  that  it  contained,  in  all,  a  couple  of  thousand 
pounds,  which  he  desired  might  be  placed  to  the  credit 
of  his  account ;  would  he  have  felt  his  honour  touched 


98  The  Country  Banker.  [let.  xv. 

or  his  veracity  impeached,  if  Mr.  Littleworth  had 
proceeded  there  and  then,  which  without  doubt  he 
would  have  done,  to  tell  over  and  verify  the  contents  of 
the  bag  ? 

In  banking  you  take  nothing  for  granted,  of  which 
the  proof  is  within  reach.  Whatever  may  be  the  point 
on  which  you  seek  assurance,  there  is  no  excuse  for  your 
resting  on  assumption,  when  you  can  fortify  your  judg- 
ment by  the  superior  logic  of  facts. 

But  let  us  assume  that  Mr.  Thornton  has  a  good  title 
to  the  property,  that  it  is  free  from  incumbrance,  and 
that  you  have  a  good  equitable  lien  upon  it.  In  the 
event,  then,  of  his  inability  to  repay  the  advance, — will 
you  be  in  a  position  to  recoup  yourself  the  £2000^  plus 
interest  and  charges,  with  reasonable  certainty  and 
despatch  } 

You  have  first  to  obtain  power  of  sale.  You  have  to 
persuade  Mr.  Thornton  to  concur  in  a  sale, — if  you  can 
overcome  a  man's  natural  repugnance  to  part  with  a 
property  which  has  been  in  his  family  for  generations. 
Or  you  may  induce  some  other  creditor  to  make  him 
bankrupt.  Or  lastly,  you  may  file  a  bill  against  him  in 
Chancery.  Such  are  the  courses  open  to  you,  when  you 
seek  to  realize  your  security — under  what  the  law,  with 
playful  irony,  styles  an  *  equitable  *  mortgage. 

But  the  right  to  sell  and  convey  being  obtained  by 
persuasion,  or  bankruptcy,  or  a  Chancery  suit,  you  are 
not  to  conclude  even  then  that  your  path  to  realization 
is  finally  cleared  of  obstruction.  Even  on  the  suppo- 
sition that  the  valuation  of  the  property  on  which  you 
have  relied  is  not  excessive — it  will  be  known  to  all 
Oxborough  that  the  Bank  is  the  seller  Traditions  of 
fabulous  bargains  made  at  sales  of  property  by  banks, 
will  demoralize  intending  buyers ;  and  the  highest  bid 
at  the  sale  may  not  be  within  speaking  distance  of  your 
reserve.  In  all  likelihood  you  will  buy  in  the  property 
in  disgust,  and  become  mortgagee  in  possession,  and, 
subject  to  leave  of  Chancery,  receiver  of  the  rents. 

What  the  net  amount  of  these  will  be,  after  deduc- 


LKT.  XV.]  Collateral  Security,  99 

tions  for  repairs,  additions,  and  what  not,  no  man  can 
tell.  But  the  fact  that  the  tenants  have  a  joint  stock 
bank  for  their  landlord,  will  no  doubt  have  a  stimulat- 
ing effect  on  their  requirements ;  and  the  result  will 
be  dispiriting,  regarded  as  a  rate  of  interest  on  your 
debt 

But  this  will  be  a  point  of  minor  importance.  The 
leading  fact  to  bear  in  mind  is  this — that  so  long  as  you 
retain  possession  of  the  property,  the  money  you  have 
advanced  upon  it  is  as  effectually  locked  up  and  unavail- 
able for  your  ordinary  business  purposes,  as  if  it  were  at 
the  bottom  of  the  Pacific.  You  cannot  discount  bills,  or 
make  fresh  advances,  or  cash  cheques,  or  pay  deposits 
with  title  deeds,  however  valuable  they  may  be.  They 
must  first  be  turned  into  money  by  public  sale  or  private 
treaty.  The  process  may  be  distasteful  and  cause  the 
loss  of  a  portion  of  your  debt :  but  better  have  the  living 
money  back  again  in  your  coffers,  even  at  a  sacrifice, 
than  tied  up  beyond  the  reach  of  use,  and  yielding  a 
return,  varying  with  the  seasons  and  the  rapacity  of 
tenants,  from  three  per  cent,  per  annum  to  within  sight 
of  nothing. 

The  laws  which  regulate  the  devolution,  sale,  and 
transfer  of  real  property  in  England,  frequently  involve 
processes  so  tedious  and  complicated,  and  so  fertile  of  cost 
and  risk,  that  real  estate  is  rather  shunned  than  sought 
after  as  a  cover  for  debt  by  many  English  Banks. ^  For 
the  bulk  of  their  advances  they  give  the  preference  to 
securities,  the  transfer  of  which  is  easy  and  inexpensive, 
and  without  complication  or  risk  in  title, — securities 
which,  for  the  most  part,  can  be  turned  into  money  on 
any  '  account  day '  throughout  the  year. 

And  bankers  will  continue  to  give  the  preference  to 
such  securities  until   something   is   done   to    facilitate 

*  To  some  extent  this  state  of  affairs  has  been  improved  by  the 
operation  of  the  Land  Transfer  Acts  of  1875  and  1897.  For  this  and 
other  reasons  English  banks  do  not  object  to  employ  a  small  pro- 
portion of  their  funds  in  lending  against  real  estate  when  the  bor- 
rowers are  known  to  be  substantial  and  there  is  a  reasonable  prospect 
of  speedy  reduction  and  repayment. 


100  The  Country  Banker,  [let.  xv. 

and  cheapen  the  sale  and  transfer  of  real  property  in 
England.  That  lands  or  houses  can  be  rendered  as 
easy  of  transfer  as  a  share  in  a  railway,  or  a  bill  of 
exchange,  or  a  ten  pound  note,  is  not  to  be  supposed ; 
nevertheless,  it  has  been  found  practicable  of  late  years 
to  prune  the  old  form  of  conveyance  of  much  of  its 
obscure  verbiage,  ridiculous  tautology,  and  bewildering 
length, — a  reform  believed  for  generations  to  be  beyond 
the  sphere  of  rational  hope,  and  exceeding  the  limits  of 
human  capacity. 

The  short  form  of  mortgage  in  use  at  your  Bank,  in 
lieu  of  the  old  '  memorandum  of  deposit,'  is  an  improve- 
ment on  that  instrument  in  two  vital  particulars,  and  a 
move  in  the  right  direction  in  other  ways  : — it  vests  the 
*  legal  estate '  of  the  property  borrowed  upon  in  the 
Bank,  and  arms  it  likewise  with  indefeasible  power  of 
sale.  It  is  printed  on  the  face  of  half  a  sheet  of  ordinary 
letter-paper,  and  has  proved  as  effectual  at  law,  and  in  all 
other  respects,  as  if  it  covered  five  skins  of  parchment, 
like  the  mortgage  of  forty  years  back  for  £150,  and 
costing  £25  (Bullion's  Letters,  p.  69) — a  monstrosity  in  legal 
form  now  happily  sharing  oblivion  with  the  ancient  unity  of 
Doe  and  Roe,  and  other  eccentricities  of  our  legal  past. 

There  exists  in  Scotland  a  registry  of  titles,  and  the 
process  of  registration,  although  not  obligatory  by  statute, 
is  rendered  such  by  usage.  ^ 

The  Scotch  banks,  therefore,  or  any  individual  of  the 
conmiunity,  by  means  of  a  simple  and  inexpensive 
process,  can  ascertain  at  any  time,  with  legal  certitude, 
who  the  existing  owner  is  of  any  property  in  Scotland, 
the  nature  of  his  ownership,  and  what  settlements, 
mortgages,  or  other  incumbrances  affect  the  property, 
without  reference  to  his  title-deeds  at  all. 

Whether  some  such  system  of  registration  could  be 
affiliated  to  the  laws  which  govern  the  mortgage  and 
transfer  of  real  estate  in  England,  it  is  hard  to  say ;  2  but, 
untU  something  be  done  to  purge  titles  to  real  property 

1  Registration  of  title  to  heritable  property  is  legally  obligatory  in 
Scotland. 

2  Some  attempt  at  such  a  system  is  embodied  in  the  Land  Transfer 
Acts  of  1875  and  1897. 


LET.  XV.]  Collateral  SfiCjiritv.  ,   loi 


of  all  ambiguity  as  regards  existing  charges  upon  them, 
you  can  never  be  certain  that  the  deeds  you  hold  against 
any  given  account  are  absolutely  complete.  Should 
there  be  one  missing,  or  the  slightest  flaw  anywhere,  you 
will  find,  to  your  cost,  that  the  practitioner  still  lives,  as 
in  Fuller's  time,  '  whose  highway  is  in  bye  paths,  and 
who  will  pick  the  lock  of  the  strongest  conveyance,  or 
creep  out  at  the  lattice  of  a  word.' 

Railway  Stock.  We  come  next  upon  what  may 
;s)roperly  be  termed  your  champion  sample  of  banking 
cover — £1000  London  and  North  Western  Railway 
Stock,  present  market  price  £1625,^  to  cover  loan  of 
£1400  for  three  months  to  O.  D., — Stock  registered  in 
name  of  the  Bank. 

This  fulfils  every  requirement  of  a  first-class  banking 
security.  It  affords  to  a  lender,  simplicity  of  title, 
cheapness  and  ease  of  transfer,  readiness  of  sale, 
reasonable  steadiness  of  value,  and  ample  margin  for  loss. 

In  the  matter  of  title,  that  of  railway  shares  is  a 
marvel  of  clearness  and  brevity.  It  does  not  require 
weeks  or  months  to  deduce  and  '  settle ; '  nor  several 
skins  of  parchment  for  its  laborious  recital,  in  a  language 
which  is  devious  and  obscure  except  to  the  legal  mind. 
The  deed  by  which  railway  shares  are  conveyed  from 
one  man  to  another,  is  printed  on  the  face  of  half  a  sheet 
of  paper,  and  is  so  simple  in  construction,  that  one  of 
your  senior  apprentices  might  fill  up  and  perfect  the 
instrument  in  a  few  minutes.  And  the  document  thus 
perfected,  will  suffice  to  convey  and  transfer  the  stock 
to  you,  were  it  hundreds  of  thousands  sterling,  as  in- 
alienably as  if  it  passed  to  you  under  the  Great  Seal  itself. 

The  shares  of  a  leading  railway  company  are  also 
ready  of  sale.  They  can  be  turned  into  money,  any 
business  day  throughout  the  year,  on  any  Stock 
Exchange  in  the  three  kingdoms.  They  thus  possess 
one  of  the  highest  qualities  of  a  banking  security — 
immediate  convertibility  into  money  at  will. 

They  have  the  further  quality  of  steadiness  of  value. 

1  Needless  to  say,  the  price  of  the  stock,  as  given  above,  no  longer 
holds  good,  but  the  illustration  may  be  allowed  to  stand. 


102  The  Country  Banker,  [l^t.  xv. 

't'.':   • ,   \  <»"^  ■■.     '. -'  f      .  f  ^* .>  •   .,— ^ 

But  apart  from  this,  your  advances  on  railway  stock,  as 
in  the  present  case,  are  protected  against  loss  in  value, 
by  your  margin  of  15  per  cent.,  which  the  borrower  is 
bound  by  agreement  to  keep  up  ;  and  if  he  fails  to  do 
so,  3^ou  can  sell  out  against  him.  A  loss  upon  such 
transactions  is  therefore  impossible,  unless  we  are  to 
imagine  a  financial  convulsion,  which  shall  topple  North 
Westerns  down  more  than  £22  los.  per  £100  of  stock 
in  four-and-twenty  hours. 

And  there  is  yet  another  point  in  favour  of  this 
description  of  security.  The  shares  are  paid  up  in  full, 
and  therefore  no  liability  in  the  shape  of  calls,  or  in 
any  other  form,  can  ever  attach  to  them.  Were  the 
London  and  North  Western  Railway  to  stop  payment 
to-morrow,  the  holders  of  its  shares  would  not  be  liable 
for  a  shilling  of  its  debts. 

In  brief,  the  ordinary,  or  preference,  or  debenture 
stock  of  any  leading  English  railway  company,  is  only 
second  in  quality,  as  a  banking  security,  to  Consols  or 
Treasury  Bills  themselves,  in  readiness  of  sale,  facility  of 
transfer,  steadiness  of  value,  and  absence  of  liability. 

Securities  to  Bearer.  Amongst  your  securities 
are  certain  bonds  and  debentures  payable  to  bearer.  In 
stability  of  value,  and  readiness  of  sale,  they  stand  high ; 
but  they  are  open  to  a  serious  objection :  if  stolen,  they 
would  be  as  difficult  of  recovery  as  so  many  bank  notes. 
All  other  forms  of  security  you  can  register  in  the  name 
of  the  Bank,  or  specially  indorse  in  its  favour  ;  so  that,  if 
abstracted,  they  could  not  be  negociated  by  the  thief,  and 
would  therefore  be  of  no  use  to  him.  But  there  is  no 
way  of  protecting  securities  payable  to  bearer,  by  regis- 
tration or  indorsement,  from  negociation.  This  being 
so,  it  follows  that  the  less  you  hold  of  them  the  better^ — 
at  least  until  some  method  can  be  devised,  which  shall 
render  them  unnegociable,  equally  with  other  forms  of 
security,  in  case  of  misappropriation  or  theft.^ 

And  this  leads  to  the  question, — ^whether  a  bank,  which 

1  Since  the  above  was  written, '  bearer  '  securities  have  increased 
enormously  in  volume,  and  they  are  now  a  more  favoured  form  of 
security  with  banks,  as  well  as  with  investors. 


LET.  XV.]  Collateral  Security.  103 

gives  safe  custody  to  this  class  of  security  for  a  customer, 
is  responsible  to  him,  in  the  event  of  its  being  stolen. 
If  so,  the  simplest  way  will  be  to  decline  the  safe 
custody  of  such  '  perilous  stuff '  altogether  ;  or  to  accept 
the  charge  on  such  terms,  as  will  exempt  the  Bank  from 
responsibility,  whether  arising  from  burglary  from  without 
or  from  fire  or  malversation  from  within. 

You  cheerfully  give  to  all  other  forms  of  documentary 
Securities  belonging  to  your  clients,  the  same  protection 
which  you  give  to  your  own,  and  will  continue  to  do  so ; 
because  if  stolen  they  would  be  incapable  of  transfer : 
but  if  certain  of  your  customers  choose  to  invest  in 
'  bearer '  securities,  with  their  unlimited  capability  of 
swift  and  secret  transfer,  and  consequent  attractions  for 
the  misdemeanant,  it  is  beyond  reason  to  cast  upon 
Bankers  the  formidable  risk  which  is  involved  in  their 
safe  keeping.^ 

Transfers  in  Blank.  In  some  instances  you  are 
content  with  a  deposit  of  railway  or  other  shares, 
bonds  or  debentures,  accompanied  by  a  transfer  in 
blank.  Where  you  are  dealing  with  persons  whom  you 
know  to  be  safe,  beyond  aU  question,  for  the  advances, 
without  security,  this  is  an  irregularity  which  may  have 
to  be  winked  at  in  some  cases ;  but  it  must  be  strictly 
exceptional. 

An  imperfect  security  is  no  security  at  all  while  it 
remains  imperfect.  It  is  open  to  the  further  objection, 
that  in  the  manifold  transactions  which  you  will  have 
to  conduct  or  supervise,  day  by  day,  you  may  forget, 
unless  you  have  a  memory  of  superhuman  range  and 
tenacity,  which  of  your  securities  are  perfected  and 
which  are  not.  You  may  thus  by  inadvertence  deal 
with  a  customer's  account  as  covered,  until  you  receive 
a  painful  refresher  to  the  contrary,  some  day,  and  find 
yourself  compelled  to  hand  your  uncompleted  security 
over  to  his  assignee  in  bankruptcy,  to  sink  into  his 
general  estate. 

There    is    this    further    objection — Companies'  stock, 

»  Nevertheless,  the  risk  is  one  which  the  public  does  not  hesitate 
to  cast  upon  its  t>ankers,  who  hold  an  exceedingly  large  number  of 
bearer  bonds  for  safe  custody. 


I04  The  Couniry  Banker.  [let.  xv. 

accompanied  by  a  transfer  in  blank,  may  expose  you  to 
as  certain  loss,  if  misappropriated  or  stolen,  as  an  equal 
value  in  *  bearer '  securities ;  because  a  thief  could  make 
immediate  use  of  an  instrument  so  admirably  adapted 
for  his  purpose  as  a  stamped  transfer  in  blank,  accom- 
panied by  the  scrip  itself.  The  transfer  thus  affably  left 
open  to  be  filled  up  as  he  shall  see  fit,  amounts  almost 
to  an  invitation  to  perfect  his  felony. 

When  there  is  more  than  one  cash  safe  at  a  Branch, 
the  scrip  could  no  doubt  be  kept  in  one  and  the  trans- 
fers in  another,  and  bearer  securities  might  be  similarly 
dealt  with,  where  the  coupons  can  be  detached  from 
the  bonds  without  detriment  to  their  negociability.  But 
even  these  arrangements  would  only  afford  a  certain 
amount  of  protection  against  external  attack.  It  would 
put  a  burglar  to  the  extra  trouble  of  forcing  a  couple  of 
safes  instead  of  one ;  but  if  he  should  ever  gain  access  to 
either,  he  will  no  doubt  have  made  his  arrangements  to 
include  both  in  the  night's  work. 

I  assume  that  when  you  make  advances  as  against 
transfers  in  blank,  to  suit  the  humour  or  the  suscepti- 
bilities of  customers,  you  do  so  on  the  understanding  that 
the  security  is  held  by  you  at  their  risk  in  case  of  fire  or 
theft?  You  hold  the  security  in  its  imperfect  form  to 
oblige  them,  and  in  violation  of  your  general  usage :  it 
is  only  reasonable,  therefore,  that  the  risk  thereby 
involved  should  be  theirs,  and  not  yours. 


Local  Shares.  The  next  sample  of  your  securities, 
although  of  some  steadiness  in  value,  is  less  negociable 
than  railway  stock: — Fifty  shares  in  the  Oxborough 
Water  Works,  to  cover  account  of  F.  G. 

'  The  shares  are  fully  paid  up ;  transferred  into  the 
Bank's  name ;  they  pay  4J  per  cent.,  and  the  last  sale 
was  slightly  above  par.' 

So  far  so  good.  They  possess  all  the  qualities  of 
a  sound  banking  security  except  one, — you  cannot  send 
them    to  the  nearest  Stock  Exchange  and  have  them 


LET.  XV.]  Collateral  Security.  105 

turned  into  Bank  notes  next  account.  You  must  wait 
for  a  local  buyer,  and  this  may  mean  weeks,  or  even 
months  of  waiting.  Any  attempt  to  force  a  sale 
would  probably  be  futile,  and  would  certainly  be  detri- 
mental to  your  security.  The  more  you  lower  the  price, 
the  more  the  hidden  purchaser,  if  there  be  one,  will 
hold  aloof.  He  will  mark  your  eagerness  to  sell  and 
prevail  against  you  by  a  masterly  inactivity  ;  unless  you 
change  your  tactics  and  play  the  waiting  game  yourself. 
If  there  is  no  urgency  in  the  case,  your  retention  of  the 
shares  will  not  involve  the  Bank  in  any  liability.  Better, 
therefore,  wait  a  month  or  two  for  a  willing  buyer,  than 
surrender  them  at  once  on  usurious  terms  to  some  local 
Shylock. 

The  objection  to  your  Water  Works  shares,  that 
is,  their  unreadiness  of  sale,  applies  to  the  shares 
or  bonds  or  debentures  of  all  merely  local  Companies, 
Corporations,  or  Trusts,  which  are  not  quoted  on 
the  price-list  of  any  Stock  Exchange ;  and  the  objec- 
tion extends  to  securities  of  every  description,  which 
can  only  be  disposed  of  by  private  sale  or  public 
auction. 


Shipping  Securities.  Your  next  example  brings  us 
to  the  consideration  of  securities,  in  pur  appraisement  of 
which,  it  is  possible  that  we  may  find  ourselves  at  sea  in 
more  senses  than  one  : — *  Mortgage  on  barque  Rapid, 
estimated  value  ;f  2500,  to  cover  debt  of  ;f  1700  by  L.  M. 
now  insolvent* 

This  might  be  a  good  security  to  a  shipowner,  or  a 
shipbroker,  because  it  is  his  business  to  know  all  about 
ships,  and  to  devote  his  whole  time  and  energy  to  the 
working  of  them  to  the  best  advantage.  But  to  do  so 
with  success,  requires  half  a  lifetime  of  business  training, 
and  a  store  of  special  knowledge,  of  which,  to  say  you 
are  well-nigh  destitute,  would  be  no  reflection  on  your 
general  qualifications  as  the  Manager  of  a  country 
bank. 


ro6  The  Country  Banker.  [let.  xt. 

The  Rapidy  it  appears,  is  now  on  a  distant  voyage, 
and  is  being  worked  on  account  of  the  Bank  as  mort- 
gagee in  possession.  It  may  be  that  the  vessel  will 
return  after  many  days,  with  a  skilful  captain,  a  steady 
crew,  and  a  splendid  freight.  But  it  is  also  possible 
that  the  reverse  of  all  this  may  happen.  A  disorderly 
crew,  a  ruinous  freight,  and  a  fool  for  captain,  would  not 
be  an  unknown  experience  to  the  British  shipowner. 

Amongst  other  things,  you  may  have  to  meet  claims, 
or  defend  law  suits,  brought  against  you  by  shippers  or 
consignees,  for  damage  to  cargo,  occasioned  through 
the  carelessness  of  captain  or  crew,  or  through  bad 
stowage. 

It  is  also  within  the  range  of  possibility  that  the  ship 
may  run  aground  in  a  fog,  or  sustain  damage  in  a  gale, 
and  have  to  put  in  for  repairs  at  some  foreign  port. 
Both  ship  and  cargo  might  thus  get  *  bottomried '  by 
her  captain  to  a  formidable  amount ;  but  whatever 
the  amount  may  be,  it  will  take  precedence  of  your 
mortgage ;  and  if  the  sum  bottomried  shall  exceed  the 
value  of  the  ship,  anything  taken  from  cargo  to  make 
up  the  deficiency  the  bank  will  have  to  make  good  to 
the  owner  of  the  merchandise.  It  might  thus  happen 
that  the  mortgagee  in  possession  of  a  ship  might  lose, 
not  only  the  sum  of  his  mortgage,  but  find  himself 
amerced  for  having  lent  his  money  on  a  precarious 
security. 

Moreover,  the  Rapid  may  some  day,  by  evil  chance, 
run  into  and  damage  another  vessel,  or  even  sink  her 
outright :  in  which  event  you  will  have  to  reckon  with 
the  law  for  the  injury  done,  and  possibly  for  the  loss 
of  human  life. 

On  the  whole  it  will  be  wiser  to  remain  the  mortgagee 
of  a  vessel,  when  you  find  yourself  in  that  position,  than 
become  mortgagee  in  possession ;  but  it  would  be  wiser 
still  to  refuse  to  lend  the  Bank's  money  on  any  terms 
on  the  security  of  ships  at  sea. 

No  doubt  the  risks  we  have  suggested  can  for  the  most 
part  be  covered  by  insurance  ;  but  is  the  game  worth  the 


LtT.xv.]  Collateral  Security.  \0*J 

candle?  Is  the  periodical  disbursing  and  manning, 
victualling  and  insuring,  loading  or  chartering  of  a  ship 
the  proper  business  of  a  Bank  Manager,  or  his  Board 
of  Directors  ?  Will  any  rate  of  banking  charge  which 
you  can  levy  on  such  transactions,  amount  to  a  reason- 
able equivalent  for  the  time  wasted,  or  the  temper 
lost  over  their  attendant  wrangles,  risks,  and  worries  ? 
Better  in  my  judgment  sell  the  Rapid  on  her  first 
arrival  in  port  at  almost  any  price,  and  thus  avoid  the 
pains  and  penalties  which  the  pursuit  of  shipowning 
has  ordinarily  in  store  for  the  uninitiated. 

In  addition  to  owning  the  whole  of  the  Rapid  you  have 
an  interest  to  the  extent  of  8/64ths  in  another  vessel  at 
sea.  There  is  one  advantage  in  your  holding  only  a  share 
in  a  ship, — your  Board  will  not  be  allowed  to  work  her ; 
she  will  be  managed  by  your  co-owners.  But  there 
is  this  disadvantage, — When  you  own  the  whole  of  a 
ship,  as  in  the  case  of  the  Rapidy  you  can  sell  her  at  any 
time,  at  a  price ;  but  you  cannot  so  easily  dispose  of 
the  fraction  of  a  ship. 

When  you  do  succeed  in  selling,  it  will  probably  be 
to  one  of  your  co-owners  ;  but  it  will  be  at  his  own  time 
and  price,  and  not  at  yours.  You  will  then  realize  the 
disparity  which  is  sometimes  found  to  exist  between 
value  and  price  ;  betwixt  the  value  put  upon  a  certain 
thing  by  its  owner,  when  he  comes  to  borrow  your  money, 
and  the  price  at  which  you  have  to  part  with  it,  when 
you  want  the  money  back  again. 

And  there  is  this  further  disadvantage  in  owning  only 
a  few  shares  of  a  ship  :  you  are  entirely  in  the  hands  of 
your  co-owners  and  liable  for  any  amount  of  debt  in 
which  they  may  involve  the  vessel.  On  the  whole,  I 
think,  as  a  banker,  I  would  part  with  these  8/64ths  on 
attractive  terms  to  the  first  buyer. 


'  Bill  of  Lading  of  hides  to  secure  ;^i4So  advanced 
to  Arthur  Pringle.* 


[o8  The  Country  Banker,  [let.  xv. 

You  hold  the  stamped  policy  of  insurance,  duly 
indorsed,  and  the  present  market  value  of  the  hides  is 
^1800.  On  the  presumption  that  you  hold  the  entire 
set  of  bills  of  lading,  and  that  there  will  be  no  stopper 
put  on  the  delivery  of  the  hides  on  arrival  of  the  ship, 
and  that  they  are  of  a  quality  to  realize  the  price  you 
quote — although  it  is  going  a  long  way  to  assume  all 
this — ^you  appear  to  hold  sufficient  security  to  cover 
your  advance. 

But  it  is  the  business  of  a  broker  to  make  advances  on 
merchandize  at  sea,  and  you  will  do  wisely  to  leave  the 
business  to  those  who  understand  it.  The  custom  of 
merchants,  or  the  intricacies  of  mercantile  law,  do  not 
necessarily  form  branches  of  a  country  banker's  educa- 
tion. A  smattering  of  such  knowledge  will  come  to  you 
no  doubt  in  time,  and  will  be  unobjectionable,  so  long 
as  you  do  not  act  upon  it.  If  you  do,  you  are  more 
than  likely,  to  use  a  popular  expression,  to  put  your  foot 
in  it. 

In  the  case  in  hand,  the  regular  course  would  have 
been  for  Mr.  Pringle  to  place  the  bills  of  lading  in  the 
hands  of  a  broker  of  repute,  and  to  draw  upon  him  for 
the  ;{J"I450  ;  obtaining  from  the  acceptor  a  letter  hypo- 
thecating the  proceeds  to  payment  of  the  bill. 

But  as  this  course  was  not  followed,  it  is  to  be  inferred 
that  Mr.  Pringle  objected  to  it.  He  preferred,  no  doubt, 
to  borrow  the  money  through  you,  at  your  ordinary  rate 
of  commission,  rather  than  obtain  it  through  a  merchant 
or  broker  at  more  than  twice  your  charge.  This  was 
only  natural.  Mr.  Pringle  would  have  been  foolish  not 
to  avail  himself  of  your  generosity.  But  on  what  ground 
a  country  Banker  should  conduct  transactions,  of  which 
he  knows  little  or  nothing,  for  one-half  the  commission 
which  would  be  charged  upon  them  by  those  who  know 
them  perfectly,  is  not  so  obvious. 

But  Mr.  Pringle,  you  explain,  is  a  man  of  substance, 
good  for  many  times  the  worth  of  the  hides,  and  a 
valued  customer  of  the  Bank  in  other  ways.  These 
considerations,  no  doubt,  change  the  aspect  of  the  affair^ 


LET.  XV.]  CoUateral  Security.  109 

and  render  a  transaction   allowable,   which  would  be 
indefensible  on  its  own  merits. 


House  Property.  You  hold  a  *  First  Mortgage  on 
twenty  cottages  in  Oxborough,  gross  annual  rental 
>S"200,  to  cover  the  account  of  Owen  Pegler  for  ;^2000.* 

It  was  considered  safe,  you  report,  to  take  the  annual 
rental  at  ten  years'  purchase,  to  find  the  value  of  the 
property.  Pegler  has  failed,  and  you  have  been  mort- 
gagees in  possession  for  some  years.  A  house-agent 
collects  the  rents  on  account  of  the  Bank,  as  best  he 
can,  but  his  latest  report  is  discouraging: — one  third 
of  the  cottages  empty  ;  half  the  tenants  more  or  less  in 
arrear  of  rent ;  the  interior  of  most  of  the  houses  sadly 
dilapidated  ;  roofs  leaking  ;  plaster  falling  off  the  walls  ; 
windows  broken  ;  doors  off  their  hinges  or  refusing  to 
shut,  and  the  sanitary  arrangements  bad  and  dangerous 
to  health.  A  whole  year's  gross  rental  will  not  suffice 
to  put  things  in  decent  repair. 

I  would  part  with  this  property,  if  it  were  mine,  at 
less  than  ten  years'  purchase  of  the  nominal  rental. 
Even  the  net  rental,  if  that  were  a  known  quantity, 
multiplied  by  ten,  would  have  been  an  outside  value  to 
have  put  upon  it — that  is  on  the  supposition  that  a  bank 
ought  ever  to  be  the  holder,  at  any  price,  of  property, 
the  rents  of  which  have  to  be  collected,  by  so  niany 
shillings  a  week,  from  poor  and  struggling  tenants,  if  the 
rents  are  to  be  collected  at  all. 

House  or  shop  property,  even  of  a  superior  class,  is 
not  a  desirable  security,  on  its  own  merits,  for  a  bank  to 
hold,  if  it  were  merely  on  the  ground  of  its  uncertainty 
of  sale.  The  ordinary  purchasers  of  house  or  shop 
property,  by  which  I  mean  buyers  for  their  own  occupa- 
tion and  use,  havci  their  fancies,  and  are  limited  in 
number ;  and  failing  a  purchaser  of  this  class  being  in 
the  market,  when  you  have  an  eligible  shop,  a  detached 
residence,  a  double  villa,  or  a  desirable  '  block  '  to  dispose 
of,  you  have  to  resort  to  the  dealer  in  house  property 


no  The  Country  Banker,  [let.  xy 

and  equities,  who  will  naturally  protect  himself  by  a 
handsome  margin,  if  he  buys  at  all ;  and  the  price  finally 
agreed  upon  will  be  nearer  his  ideas  of  value  than 
yours. 

Not  that  this  description  of  security  is  uniformly  to  be 
rejected.  You  allow  C.  B.,  for  instance,  to  overdraw  his 
account,  at  any  time,  up  to  a  certain  sum,  because  his 
balance-sheet  shews  him  to  be  safe  for  more  than  the 
amount,  and  the  account  is  profitable  ;  but  as  a  matter 
of  precaution,  you  take  the  title  deeds  of  his  house 
and  shop  as  a  security  to  fall  back  upon,  in  the  event 
of  misfortune  overtaking  him  amidst  the  unforeseen 
vicissitudes  of  his  trade. 


LETTER    XVL 

SECURITIES   WHICH    ARE    NOT    SECURITY. 

/  trusted  so  muck  that  I  solde  the  skinne  before  the  beaste  was 
taken ^  reckoning  without  mine  hoast,  and  setting  that  doivn  in  my 
bookes  as  ready  money  ^  which  afterwards  I  found  to  be  a  desperate 
debt,  EuPHUES. 

Your  sample  of  Securities  does  not  improve  in 
quality  as  we  proceed  :  on  the  contrary,  the  tendency  in 
that  respect  is  downwards. 

Life  Policies.  You  hold  a  policy  on  the  life  of  Noah 
Hardy  for  ;£'3000  to  secure  balance  of  account.  The 
present  value  of  this  security  is  some  ;f  150,  or  one  third 
the  amount  of  premiums  thus  far  paid  upon  it.  Its  pro- 
spective value  depends  upon  the  period  of  Mr.  Hardy's 
demise.  Should  tihat  be  the  unhappy  result  of  your  calling 
upon  him  to  pay  up,  the  security  will  be  available  to  its 
full  amount,  in  a  few  months  afterwards,  provided  the 
policy  has  been  assigned  to  the  Bank  and  notice  thereof 
registered  in  the  books  of  the  Insurance  Company. 

But  the  inability  to  pay  a  sum  owing  to  a  bank  has 
not  ordinarily  a  fatal  effect  on  the  life  of  the  debtor. 
As  a  matter  of  fact,  the  records  of  your  Bank  would 
rather  seem  to  shew  that  the  average  rate  of  mortality 
is  unusually  light,  amongst  parties  indebted  to  the  Bank 
on  the  strength  of  Life  Policies.  In  cases,  indeed,  where 
the  premiums  are  paid  by  the  Bank  itself,  the  debtors  fre- 
quently reach  a  patriarchal  age. 

Whether,  as  you  suggest,  the  interests  which  they 
know  to  be  involved  in  their  speedy  departure  from  this 


112  The  Country  Banker,  [let.xvi. 

life,  have  the  effect  of  rousing  an  oppugnant  and  un- 
reasonable spirit  on  the  part  of  the  assured,  which  gives 
a  fillip  to  their  constitutions  and  promotes  longevity,  is 
a  speculation  which  we  need  not  pause  to  discuss :  it  is 
enough  for  the  purpose  in  hand,  that,  in  one  instance, 
you  are  still  paying  the  annual  premium  on  a  policy 
which  your  Bank  adopted  to  cover  a  bad  debt  thirty- 
eight  years  ago.  If  you  will  put  the  matter  to  compu- 
tation, you  will  find  that  so  far  from  saving,  you  have 
thus  more  than  doubled  the  original  amount  of  this 
venerable  bad  debt. 

The  payment  of  the  premiums  on  Mr.  Hardy's  policy 
as  they  fall  due,  being  guaranteed  by  another  person,  no 
doubt  improves  the  value  of  your  security;  but  the 
improvement  is  only  a  contingent  one.  To  be  effectual, 
it  requires  that  the  guarantor  shall  live,  and  continue 
solvent,  for  five-and-twenty  years  to  come.  That  is  the 
official  period  that  persons  of  Mr.  Hardy's  present  years 
and  robust  constitution  are  computed  to  live,  and  within 
which  they  are  officially  expected  to  die ;  but  surely  a 
prodigious  period  of  time  for  any  banking  advance  to 
run  ?  Three  months  being  the  approved  average  cur- 
rency of  the  available  resources  of  a  bank,  a  debt  having 
five-and-twenty  years  to  run,  regarded  as  a  banking 
asset,  might  as  well  have  a  currency  of  centuries  or 
accomplish  the  years  of  Methuselah. 

If  Mr.  Hardy  had  offered  the  Bank  for  discount  his 
promissory  note  at  six  months  after  date,  even  in  the 
most  lax  and  easy  condition  of  the  money  market,  the 
Bank  would  have  taken  it  with  a  grudge,  if  at  all,  and 
as  an  exceptional  transaction;  but  in  making  Mr.  Hardy 
this  advance  upon  his  Life  Policy,  the  Bank  virtually 
discounted  for  him  his  promissory  note  at  so  many 
months  after  death. 

Reversions.  You  hold  the  reversionary  interest  of 
Miles  Farley  in  a  freehold  property  worth  ;^5ooo,  as  a 
security  for  advances   on  his  account.     Mr.  Farley,  it 


LET.  XVI.]   Securities  which  are  not  Security,       113 

appears,  is  one  of  five  brothers,  of  whom  the  youngest 
is  in  his  tenth  year,  and  the  property  is  not  divisible 
until  this  boy  shall  reach  the  age  of  twenty-one.  The 
property  may  be  worth  the  value  put  upon  it  and  the 
title  without  a  flaw ;  there  may  be  no  obstacle  to  a  sale 
and  no  difficulty  as  to  the  division  of  the  purchase- 
money  when  the  time  comes ;  but  that  time  is  still 
eleven  years  off,  and  that  circumstance  of  itself  dis- 
qualifies Mr.  Farley's  reversion  from  being  recognized  as 
a  sound  banking  security.  Its  currency  is  open  to  the 
objection  of  being  some  forty-four  times  the  length  it 
ought  to  be. 

Advances  on  the  security  of  reversionary  interests  are 
the  proper  business  of  our  Life  Offices,  because  these 
institutions  invest  their  assets  in  deferred  forms  of 
security,  not  only  with  advantage,  but  with  financial 
prudence.  Their  liabilities  differ  widely  in  character 
from  those  of  a  Bank.  They  are  not  payable  at  call,  or 
at  short  notice,  neither  are  they  subject  to  runs.  They 
consist  of  deposits  for  life,  and  lie  undisturbed  until 
Death  gives  notice  of  withdrawal.  A  million  of  deposits 
which  will  remain  undisturbed  for  the  life  of  a  genera- 
tion, can  be  invested  very  differently  from  a  million 
which  may  be  withdrawn  at  any  time  within  the 
compass  of  a  calendar  month. 


Bills  of  Sale.  You  hold  from  Seth  Addler  as 
security  for  his  account  a  duly  registered  Bill  of  sale 
over  his  stock  in  trade,  etc.  for  ^600. 

The  value  of  the  stock  is  set  down  at  £iQO0\  but 
if  another  cipher  were  added  to  the  figures,  the  security 
would  still  be  one  of  the  most  rickety  in  law,  and  the 
worst  in  character,  that  a  bank  could  hold.  A  security 
over  stock  in  trade,  or  furniture,  or  live  stock,  or  imple- 
ments of  trade,  or  other  articles  which  are  portable,  and 
may  be  removed,  exchanged,  or  otherwise  disposed  of  to 
any  extent  without  your  knowledge,  is  practically  no 
security  at  all.    You  might  as  weP  select  a  shifting  sand, 


114  ^'^^  Country  Banker,  [let.  xvi. 

as  a  foundation  to  build  a  house  upon ;  or  have  taken 
a  permanent  charge  upon  the  coin  in  Mr.  Addler's 
pocket,  for  all  the  certainty  you  can  have  that  the 
articles  will  be  forthcoming  when  you  come  to  sell,  or 
that  the  article  chiefly  sold,  by  virtue  of  your  security, 
may  not  prove  to  be  yourself. 

A  Bank  ought  never  to  become  the  holder  of  a  descrip- 
tion of  cover  which  only  suits  the  business  of  those  who, 
when  they  agree  to  lend  on  nebulous  forms  of  security, 
take  care  to  protect  themselves  by  a  countervailing 
density  of  charge,  in  sight  of  which  your  customary 
quarter  per  cent,  will  seem  a  vulgar  fraction  indeed. 

Second  Mortgage.  Your  next  specimen  is  *  Second 
Mortgage  for  ^I'^QO  on  house  property  in  Oxborough : 
to  secure  the  account  of  Ephraim  Raddle.'  The  valua- 
tion of  the  property  is  £^000  and  the  first  mortgage  is 
for  ;^3CX)0.  The  surplus,  or  equity,  has  been  mortgaged 
to  your  Bank  for  ;^  1 500. 

Now  the  considerations  which  guide  a  private  lender 
in  such  matters  ought  to  have  at  least  equal  weight  with 
a  banker.  If  it  would  be  imprudent  in  an  individual  to 
lend  more  than  a  certain  sum  on  a  given  property,  it  is 
difficult  to  perceive  how  it  could  be  prudent  in  a  bank 
to  do  so. 

In  Mr.  Raddle's  case,  we  may  take  it  for  granted  that 
he  raised  all  he  could  on  the  property,  in  the  first 
instance.  If  anyone  would  have  lent  him  more  than 
;^3000  upon  it,  it  is  not  to  be  imagined  that  he  would 
have  refused  the  increase.  Apart  from  the  question  of 
expense,  he  had  no  doubt  experienced  how  hard  a  thing 
it  is  to  find  capitalists  who  will  lend  money  on  the 
second  mortgage  of  anything.  We  must  therefore  regard 
^3000  as  the  maximum  which  any  prudent  lender  saw 
his  way  to  advance  upon  the  property,  and  this  being  so, 
the  question  arises, — On  what  ground  did  the  Bank  make 
a  further  advance  upon  it  of  ;^i5oo  .^  According  to  the 
valuation,  it  is  true,  there  ought  to  be  sufficient  value  in 
the  property  for  you  both, — enough  to  pay  off  the  first 
mortgagee  and  yourselves  afterwards. 


LTT.  XVI.]   Securities  which  are  not  Security,       115 

But  valuation  is  not  synonymous  with  value.  Valua- 
tions are  commonly  arrived  at  by  multiplying  the  net 
rental  of  a  property  by  so  many  years*  purchase,  accord- 
ing to  a  scale  which  has  no  fixed  basis,  but  is  purely 
arbitrary. 

Moreover,  there  are  varieties  of  valuers.  Some  are  more 
sanguine  of  view  than  others.  One  will  put  a  higher 
value  on  a  given  property  than  another  would.  In  this 
particular,  each  valuator  has  his  own  scale  and  method 
of  appraisement  and  is  a  law  unto  himself.  Properties, 
when  brought  to  the  hammer,  do  sometimes  realize  the 
valuation  put  upon  them,  but  they  more  frequently  yield 
very  much  less. 

When  a  man  therefore  advances  money  on  the 
mortgage  of  a  property,  he  usually  makes  a  large 
mental  deduction  from  the  sum  of  the  valuation.  The 
question  for  him  is  not  its  regulation  value,  but  its 
market  price, — the  sum  it  will  realize  if  brought  to  the 
hammer. 

In  the  present  case  the  lender  mentally  deducted 
£2QOO  from  the  valuation,  to  find  the  amount  it  was  safe 
for  him  to  lend.  He  therefore  regarded  two-fifths  of 
the  valuation  as  partaking  of  the  quality  of  moonshine, 
except  as  affording  him  a  margin  for  contingencies.  If 
he  was  correct  in  this,  you  would  seem  to  hold  a  legal 
mortgage  for  £  1 500  on  a  value  which  has  its  principal 
basis  in  the  imagination. 

It  may  be  that  the  lender  has  undervalued  the 
property ;  but  you  have  to  recollect  that  he  has  no 
interest  in  its  selling  for  more  than  will  recoup  his 
advance,  plus  interest  and  costs.  He  can  moreover  sell 
at  his  own  time  and  at  any  price,  without  regard  to  you 
or  your  second  mortgage,  unless  you  choose  to  step  in 
and  pay  him  off.^  You  will  thus  get  the  control  of  the 
property  into  your  own  hands  ;  but  you  will  at  the  same 
time  add  £lQQO  to  the  already  dubious  debt  of  Ephraim 
Raddle. 

1  This  is  the  chief  risk  arising  from  taking  a  second  mortgage  as 
security — the  possibility  of  the  first  mortgagee  selling  the  mortgaged 
property  for  a  sum  sufficient  only  to  repay  the  amount  of  his  first 
mortgage,  leaving  nothing  to  come  to  the  Bank  as  second  mortgagee. 

I  2 


r  1 6  The  Country  Banker,  [let.  xvi. 

Not  that  there  is  never  any  value  in  a  second  mort- 
gage. A  second  charge  for  ;^I500,  for  example,  on 
Mr.  Starkey's  estate,  a  property  worth  ;^ 20,000,  might 
safely  follow  the  only  previous  charge  upon  it  of  ;^  5000. 

But  there  is  this  further  risk  attendant  on  second 
mortgages, — Mr.  Raddle,  for  example,  might  execute 
a  third  mortgage  to  somebody  else,  and  this  third 
claimant  on  the  property  might  pay  the  first  mortgage 
off,  and  tack  his  own  claim  on  to  it,  in  advance  of 
yours.  He  who  was  third  and  last  would  thus  become 
first  and  foremost,  whilst  you  would  be  practically 
nowhere. 

I  am  informed  and  believe  that  in  this  I  am  correctly 
stating  the  law  of  the  matter — with  certain  qualifications  ; 
but  do  not  in  this,  or  any  other  matter,  take  the  law 
from  me.  This  is  not  a  legal  treatise :  I  have  purposely 
abstained,  as  far  as  it  was  possible,  from  referring  to 
points  of  law,  because,  for  one  reason,  I  am  not  a 
lawyer ;  and  because,  for  another,  the  perennial  manu- 
facture of  fresh  laws  by  the  legislature  is  so  persistent 
and  profuse,  that  even  the  Judges  of  the  land,  it  is  said, 
can  hardly  keep  pace  with  them. 

Not  that  I  would  discourage  your  careful  study  of  the 
general  principles  of  the  law,  as  they  concern  the  ordi- 
nary transactions  of  your  business,  because  you  will 
have  occasion  for  the  exercise  of  such  knowledge  day 
by  day.  It  is  not  essential  to  this  end,  however,  that 
you  should  commit  to  memory  the  whole  of  Blackstone's 
Commentaries,  or  even  Chitty  on  Bills  of  Exchange — a 
treatise  which  covered  a  thousand  pages  of  stiff  reading 
even  forty  years  ago.  There  are  handier  works  than 
these  now-a-days,  the  study  of  which  will  suffice  for  all 
practical  purposes  ;  but  inasmuch  as  English  law,  as  we 
have  just  said,  in  its  bearings  on  banking  usage  and  on 
banking  forms,  is  subject  to  frequent  change,  I  would 
counsel  you  to  be  guided  in  every  case,  where  there  \& 
any  legal  doubt  or  difficulty,  by  the  solicitors  for  the 
Bank.  The  Bank  Manager  who  shall  act  exclusively 
upon  his  own  reading  and  interpretation  of  English  law 


LET.  XVI.]  Securities  which  are  not  Security,       117 

in  these  days  can  hardly  fail  now  and  then  to  have  a 
fool  for  his  client. 


Building  Land.  Following  the  downward  tendency 
of  your  selection  of  securities  in  point  of  quality,  we  come 
next  to — 

'  Five  thousand  square  yards  of  building  land,  with 
houses  thereon,  as  security  for  advances  to  Bricknal  & 
Co.,  Builders.' 

Your  history  of  this  account  is  instructive  : — 

*At  the  date  of  the  original  advance  the  land  was 
looked  upon  as  ample  security,  being  admirably  situated 
for  residential  property  of  a  good  class. 

'  When  the  Bank  applied  to  the  Bricknals  for  repay- 
ment of  the  original  advance  oi  £\OQO,  they  stated  that 
if  pressed  just  then  they  must  suspend  ;  whereas  if  the 
Bank  would  enable  them  to  build  on  the  land,  by 
making  them  further  advances,  they  saw  their  way  to 
clearing  off  the  old  debt  and  everything  else  with 
ease  and  promptitude.  The  proposal  was  entertained, 
and  Excelsior  Crescent  was  commenced.  The  Bank 
advanced  two-thirds  the  certified  value  of  work  done, 
and  everything  went  swimmingly.  The  first  block, 
when  completed,  was  readily  mortgaged  by  the 
Bricknals  for  enough  to  repay  the  fresh  advances  made 
by  the  Bank,  as  well  as  to  effect  a  substantial  reduction 
in  the  old  score.  Consequent  upon  this  success,  two 
additional  blocks  were  started  without  delay;  but 
when  these  were  less  than  halfway  towards  completion,, 
the  Bricknals  collapsed,  and  the  Bank  was  left  with  two 
large  piles  of  unfinished  property  which  it  had  either 
to  complete  or  abandon.  We  decided  to  complete,  and 
the  last  stage  of  the  Bricknals'  account  was  worse  than 
the  first.' 

There  is  nothing  surprising  in  that  When  a  Board  of 
Directors  takes  in  hand  to  finish  half-built  blocks  of 
houses  under  their  own  supervision,  they  have  generally, 
to  use  a  colloquial  figure,  to  Day  through  the  nose.  Tliey 


ii8  The  Country  Banker.  [let.  xvl 

may  flatter  themselves  with  the  hope  that  the  property, 
when  finished,  will  sell  for  such  a  sum  as  will  repay  their 
fresh  outlay  and  extinguish  the  original  debt :  the  more 
sanguine  may  even  speculate  on  a  handsome  surplus,  to 
go  to  the  reserve  fund.  It  will  not  be  till  they  have 
cast  the  accounts  up  and  realized  the  total  cost  of 
their  amateur  adventure  in  house-building  that  the 
truth  will  reveal  itself, — that  they  had  far  better  have 
left  the  half-built  structures  to  go  to  ruin  where  they 
stood,  and  the  original  debt  to  perish  with  them. 

You  hold  another  plot  of  BUILDING  LAND,  on  which 
no  messuages  have  been  erected  as  yet  by  yourselves  or 
anyone  else.  At  the  time  the  Bank  took  the  land  as  a 
security  for  a  certain  account,  the  town,  you  explain, 
was  rapidly  extending  in  that  direction.  That  is  now 
thirty  years  ago,  and  the  town,  it  seems,  has  stretched 
entirely  the  other  way  ever  since. 

Your  field  of  two  acres,  or  9680  square  yards,  which 
was  looked  upon  at  the  time  as  ridiculously  cheap,  at 
half-a-crown  a  yard,  you  let  for  some  years  as  town 
pasturage,  at  a  few  pounds  a  year  rental,  whilst  waiting 
for  the  purchaser  who  never  came ;  but  the  fencing  so 
constantly  needed  renewal,  and  when  renewed  was  so 
promptly  carried  off,  to  be  used  as  fire-wood  by  the 
predatory  arabs  of  the  neighbourhood,  that  you  have 
long  since  abandoned  the  attempt  to  keep  it  enclosed ; 
and  it  is  now  a  sort  of  no-man's  land,  a  play-ground  for 
all  the  ragged  urchins  of  the  place,  and  the  repository 
for  fragmentary  pottery,  stray  brickbats  and  general 
rubbish. 

Excepting  shares  in  undertakings  which  involve 
liability,  it  is  difficult  to  imagine  a  more  objectionable 
security  for  a  banker  to  hold.  You  can  sell  almost 
anything  else,  at  a  price  ;  but  unless  it  is  actually  wanted 
by  some  person  at  the  moment,  for  special  purposes, 
you  cannot  sell  building-land,  unless  you  are  prepared 
practically  to  give  it  away.  You  might  have  sold 
tlie  land  in  question,  it  appears,  many  years  ago,  at  a 


LET.  XVI.]  Securities  which  are  not  Security.       119 

fraction  less  than  the  half-crown  ;  but  to  accept  the 
offer  was  looked  upon  at  the  time  by  your  authorities 
as  throwing  the  property  away,  and  the  opportunity  to 
sell  was  lost,  never,  thus  far,  to  return. 

Has  it  occurred  to  you  that  the  £1200  locked  up  in 
this  security,  if  employed  in  your  proper  business,  to 
bring  in  even  3i  per  cent,  per  annum,  would  have 
fructified  by  this  time  to  £3360^  instead  of  shrinking  to 
a  few  miserable  hundreds  ? 

For  a  Bank  to  hold  this  description  of  property 
for  better  times  and  a  higher  price,  is  virtually  to 
speculate  in  it.  Its  sale  is  of  all  things  the  most 
uncertain,  and  the  demand  for  it  the  most  capricious 
There  is  not  a  town  in  England  where  you  may 
not  find  secluded  plots  of  building-land,  which  the 
tide  of  building  has  passed  by  on  either  side,  from 
no  apparent  cause,  and  left  in  abandoned  sterility. 
As  a  banker,  you  are  a  dealer  in  money,  or  in 
securities  readily  exchangeable  for  money,  and  build- 
ing land  does  not  come  within  this  category.  It  is 
practically  inconvertible  into  money  on  rational  terms, 
and  ought  therefore  to  have  no  place  amongst  a 
banker's  assets. 


Buildings  and  Machinery.  You  held  at  one  time 
the  deeds  of  the  Atlas  Forge  to  cover  advances  to 
G.  D.  &  Co. 

*  The  firm/  you  write, '  failed  in  18 —  ,  and  when  the 
Bank  came  to  realize  its  security,  the  whole  of  the 
machinery,  which  formed  its  chief  value,  was  claimed  by 
the  other  creditors,  as  belonging  to  the  general  estate. 
The  Bank  resisted,  but  to  no  purpose. 

*  After  a  prolonged  and  costly  fight,  we  were  finally 
left  in  possession  of  the  walls  and  roof — *four  naked 
walls  that  stared  upon  each  other' — and  the  half-acre 
of  ground  they  stood  upon.  We  appear  to  have  lost 
about  three-fourths  of  this  debt' 

Smelting  works,  or  factories,  or  shipbuilding  yards,  or 


1 20  The  Country  Banker.  [let.  xvi. 

rolling  mills,  or  blast  furnaces  ;  or  works  of  any  descrip- 
tion, where  the  chief  value  consists  of  machinery,  plant, 
and  implements,  which  cannot  legally  be  mortgaged  to  a 
bank,  or  to  anybody  else,  are  securities  of  a  class  which 
all  prudent  bankers  will  resolutely  shun. 

Whatever  may  have  been  the  original  cost  of  buildings 
and  machinery,  or  the  value  of  any  work  as  a  going  con- 
cern— so  soon  as  it  ceases  to  be  workable  at  a  profit,  its 
value  to  a  lender  practically  shrinks  to  that  of  the  land 
it  stands  upon,  plus  walls  and  roof,  and  the  value  in  old 
iron  of  the  fixed  machinery. 

Securities  involving  liability.  You  hold,  or 
rather  held,  only  two  of  these ;  one  of  them  having 
happily  been  numbered  long  since  amongst  the  errors 
of  the  past. 

Your  first  sample  consists  of  '  Fifty  shares  of  £  50 
each  in  the  Nonpareil  Porcelain  Co.,  Limited,  held  on 
account  of  the  debt  of  Adrian  Ware. 

'Ware's  debt  of  ;^5 00 becoming  doubtful  in  18 — ,  the 
Bank  took  from  him  such  securities  as  they  could  get, 
the  above  amongst  the  rest.  There  was  at  the  time  only 
£^  paid  up  on  the  shares,  and  they  stood  2l£$  premium, 
and  could  have  been  sold  at  that  price ;  but  as  the 
Directors  had  private  information  that  they  would  go 
immensely  higher,  a  sale  was  deferred. 

*  We  have  since  paid  calls  upon  them  amounting  in 
all  to  ;^  20  a  share  :  no  dividends  have  been  declared  for 
years,  and  the  payment  of  calls  has  had  no  effect  on  the 
market  price.  It  has  been  like  the  pouring  of  water  into  a 
sieve  ;  in  fact  there  is  no  market  price  for  them,  and  we 
could  not  even  give  them  away  if  we  would. 

*  The  concern  is  heavily  in  debt,  and  the  majority  of 
the  shareholders  are  more  or  less  incapable  of  paying  any 
more  calls  ;  so  that  there  is  a  possibility  of  our  having  to 
pay  the  remaining  £2^  on  each  share,  and  thus  add 
another  ;^  1250  to  our  loss  by  Ware. 

*  In  seeking  to  save  the  original  debt  of  ;^5CX),  we  have 
lost  it  altogether,  and  stand  to  lose  ^^2000  besides.' 


LET.  XVI.]  Securities  which  are  not  Security,       121 

There  is  a  quiet  force  in  this  narrative  which  will  find 
its  way  to  the  heart  of  any  banker  who  has  undergone 
a  like  experience ;  the  moral  of  which  would  seem  to  be, 
that  in  grasping  at  a  security  at  the  last  moment,  as 
drowning  men  are  said  to  catch  at  straws,  a  banker  has 
to  beware  that  he  does  not  clutch  a  liability  instead. 

Proceeding  still  from  bad  to  worse,  we  finally  arrive 
at  'Lease  of  the  Lower  Deep  Coal  Mine,' — another 
security  taken  for  another  doubtful  debt.  '  We  worked 
the  mine,'  you  report,  *  on  our  own  account  for  a  good 
many  years,  but  to  no  advantage.  The  quarterly  state- 
ment, it  is  true,  always  shewed  a  substantial  profit ;  but 
the  debt  to  the  Bank  was  all  the  while  increasing,  and 
increased  largely,  from  the  time  we  took  the  mine  into 
our  own  hands.' 

If  an  adventure  is  shewing  a  steady  profit,  but  is  en- 
larging with  equal  steadiness  its  debt  to  the  bank  which 
is  carrying  it  on,  the  probability  is,  that  outgoings  which 
ought  to  be  charged  to  revenue  are  being  charged  to 
capital  instead.  In  this  way  the  working  of  the  most 
disastrous  concern  can  with  ease  and  success  be  made 
to  shew  a  profit.  The  method  is  immoral,  but  it  would 
not  be  without  precedent. 

You  only  sought  to  work  the  mine,  it  seems,  until  you 
could  find  a  purchaser  for  it ;  but  there  is  one  reflection 
with  regard  to  this  description  of  '  security,'  which  you 
will  do  well  to  lay  to  heart,  and  it  is  this, — that  when  a 
bank  takes  upon  itself  the  working  of  a  mine,  or  a  forge, 
or  a  factory,  or  any  other  concern  which  has  ruined  the 
original  adventurer,  it  is  a  reasonable  conclusion  that 
the  Bank  will  not  make  a  fortune  by  it.  If  a  man  can- 
not succeed  in  a  business  to  which  he  has  been  trained, 
and  which  he  thoroughly  understands,  it  is  beyond  con- 
ception how  another  person,  or  body  of  persons,  who 
know  nothing  about  it,  can  hope  to  do  so. 

And  the  money  loss,  which  is  the  almost  certain  result 
to  a  bank  which  takes  to  mining  or  any  other  descrip- 
tion of  business  on  its  own  account,  is  not  the  only  draw* 


122  The  Country  Banker,  [let.  xn 

back.  To  look  after  such  concerns  diverts  a  large  portion 
of  the  thought  and  care  which  the  Directors  and  Manager 
might  otherwise  apply  with  advantage  to  the  proper 
business  of  the  Bank. 

Nor  is  this  all.  A  bank  which  elects  to  mine,  or  grind, 
or  smelt,  or  spin  on  its  own  account,  transforms  every 
one  in  the  district,  who  is  following  any  of  these  lines  of 
business,  into  an  active  and  outspoken  enemy.  Its  man- 
agement is  derided,  its  losses  are  exaggerated,  and  its 
intrusion  on  a  field  of  enterprise  not  its  own  is  resented 
as  unfair,  and  denounced  as  leading  to  destruction.  And 
those  who  believe  all  this,  and  publish  it  abroad,  will  not 
rest  content  with  removing  their  own  accounts  from 
such  a  bank.  They  will  use  their  influence  to  induce 
their  friends  to  do  the  same.  The  Bank  will  thus  have 
set  itself,  so  to  speak,  to  burn  at  both  ends.  At  one 
end  there  will  be  the  loss  of  valuable  accounts  ;  at  the 
other,  the  absorption  of  profits  in  a  business  alien  to  its 
constitution. 

But  the  worst  evil  of  the  thing  is  this — that  once 
fairly  embarked  in  a  Colliery  or  any  other  description 
of  mining  adventure,  the  necessity  for  going  through 
with  it  gathers  force  with  every  fresh  thousand  sunk ; 
and  a  banker's  'alacrity  in  sinking'  under  such  circum- 
stances has  passed  into  a  proverb ; — One  more  shaft,  one 
short  drift,  a  hundred  yards  to  the  main  level,  and  fresh 
leather  to  the  pumps,  and  then — !  And  then,  in  almost 
every  case,  with  a  fatal  uniformity  of  result,  you  find 
yourself  precisely  where  you  were — plus  the  fresh  addition 
to  your  debt 

*  The  fact  was,'  you  further  report,  *  that  if  we  had 
allowed  the  mine  to  fill  with  water,  and  the  roofs  to  fall 
in,  and  the  drifts  to  choke  up,  the  penalties  of  the  lease 
were  frightful ;  and  as  for  a  purchaser  after  that,  we 
should  have  had  to  pay  a  tremendous  bonus  to  anyone 
who  would  take  the  thing  off  our  hands.  In  short  it  was 
a  case  of  pump  or  sink.* 

It  would  be  difficult  to  visit  with  an  excess  of  repro- 
bation the  Board  of  Directors  who  should  seek  to  save  a 


lET.xvi.]  Securities  which  are  not  Security.       123 

bank  from  an  impending  bad  debt  by  the  adoption  of 
any  security  which  involved  a  limitless  liability.  The 
shares  of  any  unlimited  company,  of  what  standing 
soever,  are  not  banking  securities.  That  is  not  a  secu- 
rity, which  may  some  day  become  an  overwhelming 
liability. 

This  must  conclude  your '  sample.*  It  embraces  speci- 
mens of  banking  security,  ranging  in  quality  from  the 
highest  to  the  lowest ;  from  the  very  best  to  the  very 
worst.  As  there  can  be  no  higher  point  reached  in  the 
scale  of  quality  than  London  and  North  Western  Stock, 
neither  in  the  worst  experiences  of  banking  can  there 
be  found  a  worse  example  than  *  Lower  Deeps.'  There 
are  other  securities  on  your  register,  which  we  do  not 
discuss,  because  they  assimilate,  more  or  less,  to  one  or 
other  of  the  forms  which  we  have  dealt  with,  and  are 
to  be  gauged  by  the  same  rules,  when  you  desire  to 
ascertain  their  relative  qualities  as  banking  securities. 

Glancing  backwards  over  the  various  forms  which  we 
have  had  under  review,  they  would  seem  to  require  at 
your  hands,  in  dealing  with  them,  a  range  of  ability,  an 
extent  of  knowledge,  and  a  breadth  of  judgment,  which 
are  given  only  to  men  of  phenomenal  capacity.  To 
begin  with, — ^you  are  a  railway  proprietor.  That,  how- 
ever, may  pass  ;  it  is  the  only  security  which  will  make 
no  serious  demand  upon  your  time  or  attention.  But  if 
matters  go  wrong  with  Mr.  Thornton,  you  will  have  to 
guard  against  the  legal  toils  which  await  a  mortgagee  in 
possession,  or  become  the  actual  owner,  and  possibly  the 
cultivator,  of  a  two  hundred  acre  farm.  You  are  the 
chief  moneyed  partner  in  a  porcelain  business,  with  what 
aptitude  for  that  description  of  art  manufacture  does  not 
appear.  You  are  managing  owner  of  the  barque  Rapid^ 
although  it  is  not  in  evidence  what  your  maritime 
experience  has  been,  nor  whether  you  could  tell  the 
ship's  stem  from  her  stern-post.  As  a  general  broker, 
you  do  a  little  in  hides,  and  if  misfortune  should  over- 
take Seth  Addler  we  may  have  a  taste  of  your  quality  as 


124  ^'^^  Country  Banker.  (let.  xvi. 

carpenter  and  joiner.  Banker,  railway  proprietor,  land- 
owner, potter,  general  broker,  ship's  husband  and  joiner 
— the  admirable  Crichton  himself  would  have  hesitated 
to  undertake  the  management  of  Oxborough  Branch. 

It  has  to  be  said  that  the  worst  of  your  securities  were 
taken  to  cover  advances  which  had  already  been  made, 
and  had  become  desperate  ;  but  that  is  no  excuse.  The 
branch  manager  who  should  seek  to  save  the  Bank  from 
loss  on  any  given  account,  by  the  adoption  of  securities 
which  may  become  more  fatal  absorbents  of  money 
than  the  account  itself,  betrays  an  ignorance  of  the 
ordinary  principles  of  banking  which  would  be  fatal  now 
a  days  to  his  obtaining  a  diploma  for  even  a  senior  clerk- 
ship in  a  bank  from  the  Institute  of  Bankers.* 


Note. — The  reader  is  not  to  assume  that  the  securities 
criticised  in  this  letter  are  a  fair  average  sample  of  their 
kind  ;  nor  even  that,  as  a  whole,  they  were  ever  held  by 
any  one  bank,  or  branch  of  a  bank ;  but  that  they,  or 
their  equivalents,  have  figured,  at  one  time  or  another, 
amongst  securities  held  by  banks,  is  not  a  figment  of 
the  brain,  but  a  fact  within  the  knowledge  of  the  writer. 
The  worst  of  them,  no  doubt,  belong  to  an  extinct 
Past :  but  their  record  may  not  be  without  instruction 
for  us,  even  in  these  more  enlightened  days  of  banking. 

*  The  Institute  of  Bankers.— An  institution  designed  and,  in 
my  iudgment,  destined  to  exercise  an  important  and  beneficial  influence 
on  the  banking  of  the  future.  To  our  banking  youth,  especially,  member- 
ship in  the  Institute  should  be  a  powerful  attraction,  because  in  the 
estimation  of  Boards  of  Bank  Directors  its  Diploma  will  take  a  prominent 
place  henceforth  amongst  the  recommendations  of  those  seeking  ad- 
vancement. 


LETTER    XVII. 

DEPOSITS    AND    RUNS. 

Fancy  is  the  castle  commanding  the  city ;  and^  if  ome  merii 
heads  be  possessed  with  strange  imaginations,  the  luhole  body  ivill 
follow  and  be  infinitely  transported  therewith.  Fuller. 

In  common  with  other  banks,  you  are  ready  at  all 
times  to  accept  from  people  the  use  of  money,  for  which 
they  have  no  immediate  employment  themselves ;  and 
who  believe  it  will  be  in  safer  keeping  with  you,  than  in 
the  seclusion  of  their  own  pockets.  You  accept  the  use 
of  money  also  from  persons  in  business,  although  they 
have  almost  daily  employment  for  it  themselves,  but 
who  prefer  to  place  it  in  the  Bank,  day  by  day,  rather 
than  trust  it  to  the  protection  of  their  own  tills  or  cash 
boxes  overnight. 

The  people  who  thus  make  you  the  custodian  of  their 
floating  cash  have  a  motive  for  so  doing  beyond  the 
attraction  of  receiving  interest  upon  the  money.  They 
reflect  that,  in  the  event  of  the  bank  being  burnt  down 
or  broken  into  and  plundered,  they  have  still  the  share- 
holders to  fall  back  upon  to  make  their  money  good ; 
whereas,  in  the  event  of  a  personal  experience  of  this 
nature,  they  would  have  nothing  to  fall  back  upon  but 
the  police. 

The  trader  who  retains  ;^50  in  his  own  keeping 
overnight,  rather  than  pay  a  trifling  commission  to  his 
banker  for  taking  charge  of  the  money,  and  awakes  to 
find  his  till  forced  and  the  money  gone,  will  hardly 
deem  the  operation  a  brilliant  one,  which  has  saved  him 
fifteen  pence  at  the  cost  of  fifty  pounds. 

Moneys  placed  by  their  owners  in  a  bank  are  in  the 


126  The  Country  Danker,  [lilt.  xvix. 

nature  of  loans,  but  not  loans  in  the  usual  sense  of  the 
term.  The  ordinary  borrower  applies  to  the  lender,  but 
in  your  case,  it  is  the  lender  who  applies  to  you.  The 
borrower  seeks  to  borrow,  because  he  is  in  want  of  the 
money ;  but  you  are  not  in  want  of  it,  neither  do  you  go 
about  seeking  for  it  If  it  is  brought  to  you,  you  can 
no  doubt  make  use  of  it ;  if  it  is  not  so  brought,  you  can 
do  without  it.  There  is  no  favour  involved  either  way. 
Moreover,  when  an  ordinary  loan  is  sought  for,  it  is 
usually  for  a  term  of  years,  and  involves  a  certain  degree 
of  permanence  ;  whereas  the  loans  tendered  to  you  are 
for  terms  measurable  by  months,  weeks,  or  days,  and 
sometimes  even  by  hours  ;  and  their  feature  is  instability. 
In  brief,  moneys  placed  with  a  bank  are  as  much  de- 
posited for  safe  custody  as  lent,  and  hence  for  shortness, 
the  term  applied  to  them — Deposits. 

You  separate  your  deposits  into  two  classes — into 
those  which  you  have  to  repay  at  any  moment  on 
demand,  and  those  which  are  not  repayable  without 
previous  notice.  The  former  you  pass  to  the  credit 
of  parties  on  current  or  running  account ;  the  latter 
you  place  to  their  credit  on  deposit-receipts.  These 
receipts  are  subject  to  notice  of  withdrawal,  ranging 
from  a  few  days  to  a  calendar  month,  according  to 
the  usage  of  different  banks  and  localities ;  and  in 
consideration  of  this  proviso,  you  allow  a  higher  rate 
of  interest  on  the  money  than  if  it  were  repayable  on 
demand. 

The  more  volatile  class  of  your  deposits,  namely,  the 
balances  of  your  current  accounts,  as  we  have  said,  are 
payable  on  demand  ;  but  you  have,  no  doubt,  an  under- 
standing with  your  principal  clients,  that  they  will  not 
check  upon  you  for  large  amounts  without  previous 
notice,  however  brief  No  doubt  there  are  those  who, 
either  from  perversity  or  want  of  thought,  omit  this  simple 
act  of  courtesy,  and  will  check  upon  you  at  times  for 
large  sums  without  a  moment's  notice.  Accounts  of  this 
description  will  sometimes  provoke  the  query,  whether  it 
would  not  be  to  your  advantage,  on  the  whole,  if  they 


LET.  XVII.]  Deposits  aftd  Runs.  ia7 

were  taken  elsewhere.  It  is  evident  that  you  can  de- 
rive but  slight  advantage  from  the  use  of  balances  so 
capricious ;  inasmuch  as  they  oblige  you  to  keep  an 
abnormal  amount  of  cash  lying  idle  in  your  coffers,  to 
meet  their  abrupt  and  uncertain  movements. 

The  advantage  sought  by  a  banker  in  having 
the  bulk  of  his  deposits  subject  to  previous  notice  of 
payment  is  obvious:  it  protects  him  against  sudden 
demands  of  embarrassing  amount,  whilst  it  enables  him 
to  employ  a  larger  portion  of  such  funds  in  discounts 
and  advances. 

The  only  member  of  the  community  who  may  not 
with  impunity  request  a  creditor  to  call  again  to-morrow 
is  the  banker — not  that  he  gets  payment  of  the  debts 
owing  to  him  more  readily  than  other  people ;  on  the 
contrary,  there  would  seem  to  be  a  pestilent  and  wide- 
spread belief,  that  a  banker  has  untold  hoards  of  money 
always  at  command,  and  can  'wait.'  He  acts  as 
middle-man  between  the  lenders  and  the  borrowers  of 
money,  and  is  purveyor  general  of  cash  for  the  com- 
munity. But  there  is  this  distinction — whereas  the 
banker  is  bound  to  refund  the  money  to  every  depositor 
the  moment  it  is  asked  for,  the  persons  to  whom  he 
has  lent  it  do  not  feel  themselves  under  any  such 
peremptory  obligation.  It  is  by  no  means  fatal  to  a 
trader's  credit,  to  inform  his  bankers  upon  occasion 
that  they  must  wait ;  but  such  an  intimation,  if  made 
by  a  banker,  would  be  his  commercial  death.  For  him 
there  is  no  waiting  and  no  mercy— not  for  an  hour. 
He  must  pay  his  debts,  the  moment  they  are  due  and 
demanded,  or  close  his  doors. 

There  are  people  without  number,  who  have  yet  to 
realize  the  simple  fact  that  banks,  if  they  are  to  pay 
interest  at  all  on  moneys  deposited  with  them,  must 
re-lend  the  greater  portion  of  such  moneys  at  interest  to 
other  people.  In  spite  of  School  Boards  and  the  march 
of  intellect,  there  are  those  who  harbour  the  delusion 
to  this  day,  that  the  money  which  they  deposit  in 
a  bank — the  identical  notes  and  coin — are  straightway 


128  The  Country  Banker,  [let.  xvil 

placed  in  impregnable  cash  vaults,  there  to  remain  until 
the  owners  want  the  notes  and  coin  out  again ;  as  if 
money  thus  disposed  of  would  fructify  of  itself  and 
yield  perennial  fruits  of  increase. 

Mr.  Oliver  Nayler,  the  keenest  man  of  business  in 
Oxborough,  who  has  a  few  thousands  at  his  credit  at 
your  Branch,  and  is  amongst  the  first  to  join  in  a  run  upon 
you,  will  admit  with  effusion  that  such  ideas  are  absurd, 
and  degrading  to  the  human  intellect;  but  that  he 
requires  the  money  for  a  particular  purpose  that  day  and 
must  have  it.  It  wounds  him  to  the  quick  to  ask  for  the 
money  without  a  moment's  notice,  but  he  finds  there  is 
no  reasoning  with  some  people.  Moreover,  his  word  is 
pledged,  and  he  cannot  go  back  from  that. 

Mr.  Nayler  is  right — there  is  no  reasoning  with  some 
people,  especially  of  the  Nayler  class.  You  might  as 
well  seek  to  reason  with  a  savage  on  the  war  path,  as 
with  a  depositor  *  on  the  run.'  The  promptings  of  avarice 
and  fear  so  possess  him  for  the  moment,  that  nothing 
will  content  him,  until  he  has  clutched  the  actual  money, 
that  he  may  hide  it  away  in  the  traditional  old  stocking, 
or  whatever  may  be  the  secret  place  of  his  hid  treasure. 
How  soon  the  secondary  terrors  of  fancying  his  house 
broken  into,  his  throat  cut,  and  the  money  stolen,  will 
supervene  and  outweigh  his  former  fears,  will  depend 
on  temperament ;  but  these  thoughts  will  come  to  him 
before  long,  in  the  night  watches  ;  and  when  he  comes 
to  re-deposit  the  money,  you  will  no  doubt  render  its 
withdrawal  subject  to  the  longest  term  of  notice  within 
the  range  of  your  instructions. 

Your  preparedness  as  a  bank,  at  every  hour  of  every 
business  day,  to  lend  money,  or  accept  the  use  of 
it  at  interest,  to  any  amount,  from  tens  to  tens  of 
thousands — although  a  service  to  the  community  of 
priceless  convenience,  is  entirely  ignored  and  set  aside 
in  the  blind  selfishness  of  a  run.  But  whatever  sense 
of  heartless  requital  may  be  stirred  within  you  by  this 
reflection,  you  will  do  wisely  to  keep  it  strictly  to 
yourself.      Better  accept  the   inevitable  with  a   good 


LET.  xvii.]  Deposits  and  Runs.  1 29 

grace  than  with  an  impotent  resentment.  Receive  your 
panic-stricken  depositors  with  a  smile,  however  forced, 
rather  than  with  an  angry  frown  ;  because,  whether  you 
regard  them  with  one  expression  or  the  other,  the  money 
they  will  have  there  and  then,  whilst  the  fit  is  on  them — 
let  whatsoever  else  happen.  '  The  robb'd  that  smiles,' 
you  will  remember,  *  steals  something  from  the  thief.* 

When,  after  a  time,  they  find  that  the  panic  W9.S 
groundless,  and  that  the  Bank  is  none  the  worse  for  the 
hammering  it  has  sustained,  and  the  desire  to  re-deposit 
the  money  awakens  again  within  them,  there  can  be 
little  doubt  which  expression  of  the  two — the  smile  or 
the  frown — will  have  the  larger  effect  in  attracting  the 
money  back  to  you,  or  deflecting  it  to  other  banks. 

When  you  find  that  a  run  has  actually  set  in  upon 
you,  you  will  have  to  carry  yourself  at  all  points  with- 
out trepidation ;  because  if  those  who  come  first  see 
that  you  are  nervous  or  put  about,  they  will  conclude 
that  there  is  ground  for  their  uneasiness,  and  will  not  fail 
to  convey  the  fact  to  their  neighbours, — as  soon  as  they 
have  their  own  money  safe,  and  can  afford  to  be  gene- 
rous. Your  course  indeed  will  be  to  meet  all  demands 
with  an  eagerness  of  despatch  ;  you  will  thus  prevent, 
amongst  other  things,  a  gathering  together  of  excited 
persons,  three  or  four  deep,  outside  your  counter ;  an 
assembly  which  cannot  be  too  promptly  dispersed.  If 
left  too  long  to  simmer,  it  may  boil  over,  and  intensify 
matters  within  doors  and  without. 

And  you  have  to  take  into  account,  that  the  persons 
running  for  their  money  will  not  be  limited  entirely  to 
those  whose  deposits  or  credit  balances  are  payable  at 
call.  Others  will  join  in  the  rush,  and  demand  their 
money  with  equal  vehemence,  although  their  deposits 
are  subject  to  notice  and  no  such  notice  has  been  given. 
The  persons  who  will  thus  seek  to  break  through  their 
bargain  with  you  may  be  few  in  number,  or  they  may 
be  many — it  is  impossible  to  say ;  so  much  will  depend 
upon  the  incidents  of  the  moment.    But  it  will  be  safe 


1 30  The  Country  Banker.  [let.  xvii. 

to  conclude  that  the  great  majority  of  your  depositors, 
under  any  circumstances,  will  honourably  abide  by  the 
term  of  notice  which  they  have  covenanted  to  give. 

The  question  remains — how  best  to  deal  with  the 
impracticable  few.  You  would  refuse  point-blank  to  pay 
them  their  money  without  the  stipulated  notice.  You 
are  aware,  you  add,  that  this  step  will  transform  some  of 
them  into  brawling  idiots  on  the  spot ;  but  you  would 
not,  on  that  account,  suffer  the  Bank  to  be  bullied.  You 
do  not  doubt  that  your  firmness  will  cause  the  Bank  to 
be  vilified  up  hill  and  down  dale.  In  every  bar  parlour 
in  Oxborough,  you  feel  assured,  the  thing  will  be  dis- 
cussed to  the  accompaniment  of  pipes  and  beer.  The 
pernicious  Bagster  will  not  fail  to  suggest,  that  a  bank 
must  be  hard  up,  which  asks  for  a  month's  time  to  pay 
old  Ricketts  his  seventy  pounds,  which  the  poor  old  man 
wants  so  badly.  You  are  conscious  that  all  this  will 
tend  to  widen  the  area  of  disturbance,  intensify  the  run, 
and  enlarge  the  ultimate  chasm  in  your  deposits ;  but 
you  know  that  the  position  of  the  Bank  is  invulnerable, 
and  that  it  can  afford  to  adhere  to  principle,  and  hold  all 
these  possibilities  in  utter  contempt  and  defiance.  In 
short,  you  would  hold  every  depositor  to  the  letter  of 
his  bond,  and  have  no  paltering  with  the  sanctity  of 
contract. 

But  the  question  at  issue  is  not  the  stability  of  the 
District  Union  Bank — that  goes  without  saying — nor 
the  sanctity  of  contract.  The  question  at  issue  is  the 
simpler  one — Is  the  procedure  you  propose  worth  its 
drawbacks }  For  the  mere  sake  of  holding  strictly  to 
their  engagements,  in  respect  of  notice,  a  score  or  two  of 
depositors,  under  the  influence  of  temporary  delirium,  is 
it  worth  while  to  give  impetus  and  expansion  to  a  move- 
ment, which  might  prove  a  source  of  serious  loss  to  the 
business  of  your  Bank  and  of  grave  consequences  to  many 
of  its  constituents }  You  have  to  bear  in  mind  that  your 
deposits,  taking  them  all  round,  yield  a  profit  on  their 
use,  and  contribute  largely  to  your  rate  of  dividend. 
It  is  incumbent  upon  you,  therefore,  to  avoid  causing 


r.ET.  XVII.]  Deposits  and  Runs,  131 

the  withdrawal  of  any  portion  of  tliem,  by  any  act  of 
your  own.  A  contract  which  the  other  party  seeks  to 
break,  need  surely  have  no  sanctity  for  you,  if  it  be  to 
your  advantage  to  let  him  break  it  ?  If  by  refusing 
payment  of  his  ;^ICXD,  without  the  required  notice,  to 
some  panic-stricken  creature,  you  cause  him  to  make  an 
outcry  which  shall  incite  other  people  to  run  upon  you 
for  twenty  times  the  amount ;  you  will  have  hold  him, 
against  his  will,  to  the  conditions  of  a  contract,  which  it 
was  twenty  times  more  your  interest  than  his  to  set 
aside. 

But  there  is  another  consideration :  a  banker  employs 
the  bulk  of  his  deposits  in  discounts  and  advances, 
whereby  the  agricultural,  trading,  and  other  interests 
of  his  district  are  daily  convenienced  and  benefited. 
When  his  depositors  turn  upon  him,  therefore,  and  with- 
draw their  money,  he  is  obliged  to  contract  his  discounts 
and  advances  to  a  corresponding  extent.  Apart  from 
the  contraction  of  business  and  shrinkage  of  profits  which 
this  process  will  entail  upon  himself,  he  is  bound  to  con- 
sider its  effect  upon  the  business  arrangements  of  his 
customers,  and  the  certain  inconvenience  and  possible 
loss  which  it  may  entail  upon  them.  It  follows,  I  think, 
that  your  first  and  paramount  object,  when  you  are 
menaced  with  a  run,  should  be  to  limit  the  extent  of  the 
movement  by  all  just  and  available  means,  so  as  to 
render  the  ultimate  chasm  in  your  deposits  as  little 
serious  as  possible. 

But  your  proposed  line  of  action  is  not  -calculated 
to  bring  about  this  result — you  would  hold  a  score  or  two 
of  ignorant  and  excited  people  at  defiance,  on  what  will 
appear  to  them  a  shallow  pretext  and  trivial  point  of 
form  ;  you  will  thus  transform  them  into  so  many  fire- 
brands, who  will  go  forth  into  the  highways  and  by-ways 
and  spread  the  conflagration.  At  the  first  appearance 
of  fire  you  would  drown  it  out ;  for  a  like  reason,  at  the 
first  appearance  of  a  run,  do  your  best  to  stifle  it,  be- 
cause, like  fire,  it  is  swift  and  terrible  of  growth. 

When  a  depositor  demands  payment  of  money  which 

K  % 


132  The  Country  Banker.  [let.  xvn. 

is  not  due  to  him  for  a  month,  or  whatever  the  term  of 
notice  may  be,  and  it  is  manifest  that  for  the  moment  he 
is  beyond  reasoning  with  ;  offer  to  pay  him  at  once,  but 
with  such  abatement  of  interest  as  the  circumstances 
demand.  He  has  in  fact  forfeited  his  claim  for  interest 
altogether,  because  he  has  violated  the  condition  on 
which  interest  was  made  to  run.  In  the  most  liberal 
view  of  the  matter,  he  must  rest  content  with  such  in- 
terest as  would  have  accrued  on  the  deposit  if  placed 
with  you  at  call. 

If  he  objects  to  the  deduction,  he  has  the  remedy  in 
his  own  hands;  he  can  leave  the  money  where  it  is, 
and  give  the  required  notice.  The  more  panic-stricken 
will  agree  to  the  abatement  without  demur — only  too 
thankful  to  have  the  money  back  again  on  any  terms ; 
but  the  less  alarmed  will  probably  take  another  view 
of  the  situation.  The  fact  that  you  are  ready  and 
willing  to  pay  every  demand  at  once,  whether  due  or 
not  due,  will  satisfy  them  that  you  are  not  going  to 
break  after  all ;  and  rather  than  let  you  have  the 
advantage  of  them  about  the  interest,  they  will  give  the 
required  notice  and  leave  their  deposits  where  they  are. 

In  either  case,  the  minds  of  bystanders  will  be 
favourably  impressed.  They  will  see  that  so  far  from 
being  *  hard  up,'  you  are  prepared,  on  reasonable  condi- 
tions, to  pay  thousands  upon  thousands  of  deposits  not 
yet  due,  and  unfairly  demanded  ;  and  Mr.  Bagster  will  be 
non-plussed.  The  touching  incident  of  old  Ricketts  and 
his  £^0  will  not  be  available  as  a  sensation,  because  it 
will  never  have  attained  existence  as  a  fact. 

One  reason  for  having  as  large  a  portion  as  possible 
of  your  deposits  put  on  deposit  receipt  is  this — the  re- 
ceipts are  not  transferable.  They  must  be  presented  for 
payment  by  the  depositors  in  person,  and  the  majority 
of  depositors  are  shy  of  exhibiting  a  want  of  confidence 
in  their  banker  to  his  very  face,  and  will  not  lightly  join 
a  run  upon  him.  But  where  the  money  is  lying  on  cur- 
rent account,  and  can  be  drawn  out  by  cheque  payable 
to  bearer,  the  depositor  is  enabled  to  avoid  this  hurt  to 


LET.  XVII.  j  Deposits  and  Runs,  133 

his  feelings,  by  passing  the  cheque  to  a  friend,  who  will 
draw  the  money  for  him  without  pain  or  scruple. 
Persons  are  known  to  have  gone  beyond  even  this 
method  of  evasion,  by  drawing  numbers  of  cheques  on 
their  accounts,  during  the  worst  hours  of  a  crisis,  in 
payment  of  fictitious  wants  and  imaginary  creditors  ; 
thus  hoping  to  hoodwink  their  bankers  by  a  device  of 
transparent  meanness.  If  these  men  had  had  the  man- 
liness to  go  to  their  bankers,  when  their  fears  became 
acute,  their  anxieties  would  have  been  set  at  rest,  and 
they  would  have  been  guiltless  of  contributing  their  little 
utmost  to  the  monetary  strain  of  the  time. 

In  the  good  old  coaching  days,  before  the  electric 
telegraph  was  thought  of,  and  whilst  railways  were  yet 
in  their  infancy,  a  Branch  was  sometimes  distant  from 
Its  centre,  or  Head  office,  several  days  even  by  post  A 
sudden  and  unexpected  run  had  then  to  be  differently 
faced.  The  object  to  be  gained  was  time,  to  tide  the 
Branch  over  the  first  rush  of  depositors,  until  supplies 
could  arrive  from  head-quarters.  The  traditional  shifts 
resorted  to  for  this  purpose  were  varied,  and  not  seldom 
tinged  with  humour.  The  cashier  who  inscribed  *  No 
funds'  on  a  large  cheque,  which  he  had  not  money 
enough  in  his  till  to  meet,  must  have  been  a  born 
humorist ;  and  only  thirty  years  ago,  a  writer  of  the 
name  of  Bullion  is  to  be  found,  who  calmly  recommends 
a  Branch  Manager  to  begin  to  pay  everything  during  a 
run  in  his  own  notes.  The  adoption  of  this  course,  this 
cynic  observes,  will  have  the  effect  of  gaining  time,  and 
obliging  each  depositor  to  resort  to  a  series  of  fictions  on 
the  spot,  as  reasons  why  he  would  rather  have  gold. 
To  go  still  further  back,  'The  bankers  are  so  called 
upon,'  writes  Pepys  in  1667,  'that  they  will  be  all  broken, 
hundreds  coming  to  them  for  money,  and  they  answer, 
"It  is  payable  at  twenty  days — when  the  days  are  out 
we  will  pay  you  ;  "  and  those  that  are  not  so,  they  will 
make  tell  over  their  money,  and  make  their  bags  false, 
on  purpose  to  give  cause  to  re-tell  it  and  so  spend  time.* 

But  the  necessity  for  all  such  shifts  now-a-days  no 


134  The  Country  Banker.  ilet.  xvn. 

longer  exists.  The  railway  and  the  telegraph  have 
practically  brought  the  head  office  of  a  bank  and  its 
branches  under  one  roof;  so  that  the  entire  resources 
of  the  establishment  can  now  be  brought  to  bear,  at  a 
few  hours'  notice,  on  any  point  assailed. 

If  I  had  been  writing  the  present  book  only  a  few 
years  ago,  I  would  have  looked  upon,  and  omitted  all 
mention  of  a  run  upon  a  bank,  as  a  thing  long  since 
obsolete,  and  as  barbarous  in  its  day  as  rick-burning  or 
the  wilful  destruction  of  machinery.  But  the  events  of 
December  1878  effectually  upset  this  complacent  view 
of  things.  The  country  then  became  the  astonished 
witness  of  persistent,  and  in  certain  cases,  concerted  runs, 
directed  against  some  of  the  largest  deposit  banks  in  the 
kingdom — not  headed  by  the  more  ignorant  classes  of 
depositors,  for  whom  there  might  have  been  some 
excuse ;  but  by  persons  for  whom  there  was  none. 
Happily  for  the  common  weal,  the  banks  run  upon  were 
without  exception  of  assured  strength ;  they  were  shorn 
of  many  millions  of  deposits  in  a  few  weeks,  but  they 
passed  through  the  ordeal  with  untarnished  credit,  and 
thus  averted  a  monetary  crisis,  of  which  it  would  be 
difficult  to  estimate  the  range  or  the  consequences. 


LETTER    XVIII. 

INTEREST    AND    DISCOUNT. 

IVere  it  not  for  this  easy  borrowing  upon  interest^  men's 
mcessities  would  draw  upon  them  a  most  sudden  undoing:  in  that 
they  would  be  forced  to  sell  their  means  {be  it  lands  or  goods)  far 
underfoot;  and  so  y  whereas  usury  doth  but  gnaw  upon  them,  bad 
markets  would  swallow  them  quite  up.  Bacon. 

In  the  great  provincial  cities,  second  only  to  London 
itself  in  the  magnitude  of  their  commercial  and  banking 
operations,  the  rate  of  interest  will  follow  more  or  less 
closely  the  London  rate,  both  in  respect  of  interest  on 
deposits  and  the  discount  on  bills  ;  but  in  the  smaller 
towns  and  country  districts,  a  less  fluctuating  scale  of 
rates  is  followed  and  preferred. 

Interest  on  Deposits.  In  respect  of  money  lying 
on  deposit  at  their  bankers,  country  people  prefer  a 
steady  average  rate.  They  do  not  care  to  have  the 
interest  worked  on  a  scientific  scale  ranging  from  i 
per  cent,  to  5.  They  could  never  arrive  at  a  notion  of 
what  the  interest  would  come  to,  with  so  many  jumps 
from  one  rate  to  another. 

You  could  no  doubt  reconcile  them  to  London  rate  as 
long  as  it  stood  at  4  or  5  per  cent. ;  but  all  the  King's 
horses  and  all  the  King's  men  would  never  bring  them 
back  again,  with  their  own  wills,  to  one  per  cent.  You 
might  prove  to  them  beyond  cavil,  tliat  the  condition  of 
things  in  Lombard  Street  compelled  the  reduction  j  but 
country  people  know  nothing  about  Lombard  Street,  and 
they  have  no  desire  to  know.  You  might  as  well  hope 
to  explain  to  them  the  principle  of  the  Integral  Calculus, 
as  the  mysteries  of  the  exchanges.  It  suits  their  ways 
better  to  have  an  arrangement  about  interest  which  does 
not  require  so  much  thinking  about.  They  do  not  ap- 
prove of  a  rate  that  veers  about  so  frequently  that  they 
can  never  rightly  know  where  they  are.  They  dislike 
bother,  and  this  would  bother  them  exceedingly.     They 


36  The  Country  Banker.  [let.  xvhi. 


prefer  an  arrangement  with  their  bankers,  which  shall 
continue  without  change,  until  they  want  the  money  out 
again,  let  the  value  of  money  in  London  in  the  mean- 
time be  what  it  may. 

The  rate  thus  agreed  upon  will  vary  in  accordance, 
partly  with  the  custom  of  localities,  partly  with  the  usage 
of  individual  banks ;  but  mainly  with  the  condition  upon 
which  the  money  is  deposited. 

You  could  not,  for  example,  allow  the  same  rate  of 
interest  on  £  looo  repayable  at  call,  and  which  may  be 
withdrawn  at  any  moment,  as  upon  a  like  amount  which 
cannot  be  withdrawn  short  of  a  month's  notice ;  because 
deposits  payable  on  demand  must  be  invested  in  bank- 
ing securities  of  the  highest  class,  and  will  consequently 
yield  a  low  rate  of  return. 

Deposits,  on  the  other  hand,  which  are  subject  to 
notice,  afford  you  time  to  turn  in,  and  could  be  employed 
in  less  available  securities  and  bringing  you  a  somewhat 
better  yield  of  interest.  If  your  rate  for  deposits  pay- 
able on  demand  were  2  per  cent,  for  example,  it  might  be 
2 J  on  those  subject  to  your  usual  term  of  notice,  and  2 J 
on  those  lodged  for  longer  periods. 

Country  banks  for  the  most  part  adhere  to  their 
average  rate,  even  when  the  London  banks  are  only 
allowing  one  per  cent. ;  so  that  if  the  country  rate  never 
mounts  so  high  as  that  of  London,  neither  does  it  ever 
sink  so  low.^ 

'London  rate'  for  deposits  has  ruled,  thus  far,  at 
about  one  per  cent,  below  the  published  rate  of  discount 
at  the  Bank  of  England  for  the  time  being.^ 

Now  the  average  of  Bank  rate,  during  the  ten  years 
ended  31st  December,  1884,  was  £1  3^.  i\d.  This 
would  probably  give  us  about  2  J  per  cent,  for  average 

1  The  absorption  of  so  many  country  banks  by  metropolitan 
banks  makes  some  modification  of  this  statement  necessary,  but  a 
metropolitan  bank  which  absorbs  a  provincial  institution  endeavours 
to  preserve  continuity  of  usage  in  the  matter  of  deposit  rates,  and 
while,  owing  to  amalgamations  and  other  causes,  there  are  more 
exceptions  now  than  when  this  statement  was  made,  it  is  still  largely 
true  that  banks  in  the  country,  for  the  most  part,  adhere  to  their 
average  rate. 

■  In  normal  times  the  '  London  rate'  for  deposits  is  ij  per  cent 
below  Bank  rate. 


LET.  xv'in.j  Interest  and  Discount.  137 


London  rate.^  The  London  banks,  therefore,  hold  their 
interest  bearing  deposits  on  terms  which  would  probably 
be  found  in  close  proximity  to  those,  on  which  the 
country  banks  on  the  average  hold  theirs ;  so  that  it 
comes  to  much  the  same  thing,  whether  a  depositor 
works  by  the  one  scale  or  the  other. 

In  the  course  of  your  business,  you  will  no  doubt 
be  assured  at  times  that  your  rate  on  deposits  is 
lower  than  at  some  other  bank  ;  but  it  will  be  well 
to  verify  such  statements  in  all  cases  where  practicable, 
because  they  are  not  always  true.  You  hear  of 
banks  offering  in  some  cases  rates  for  deposit  money, 
sufficient,  you  protest,  to  make  your  hair  stand  on  end. 
It  may  not  be  true  ;  but  if  it  is,  let  us  hope  that 
the  cases  are  few  in  number  and  the  banks  fewer  still. 
That  high  interest  means  high  risk,  is  a  maxim  which 
has  a  meaning  even  for  bank  depositors,  if  they  would 
note  it. 

The  average  rate  which  a  country  bank  can  prudently 
allow  on  its  deposits  is  not  an  arbitrary  thing,  which 
may  be  safely  disregarded  and  put  aside.  It  is  the 
result  of  deliberate  calculation,  resting  on  experience 
spread  over  many  years,  and  is  virtually  based  on  the 
average  London  rate,  which  it  exceeds  only  by  a  small 
fraction.  No  country  bank,  therefore,  can  habitually 
purchase  the  use  of  money  at  a  price  materially  in 
excess  of  its  average  value,  unless  such  bank  is  pre- 
pared to  do  one  of  two  things  —  it  must  be  prepared, 
either  to  employ  the  money  at  a  loss,  which  is  in- 
credible ;  or  to  risk  its  employment  in  forms  of  advance, 
which  may  bring  it  a  high  rate  of  interest,  but  will  not 
be  available  financially  in  time  of  need. 

The  depositor  cannot  with  impunity,  as  we  have 
said,  be  requested  to  call  again  for  his  money  some 
other  time.  It  Is  no  concern  of  his,  if  his  mone> 
has  been  locked  up  in   advances,  resting  on  securities 

1  The  average  Bank  rate  during  the  ten  years  ending  31st  Decem- 
ber, 19 1 7,  was  l^  3s.,  and  the  average  London  deposit  rate  was 
l^  los.  6i.,  but  no  reliable  deduction  can  be  made  from  a  comparison 
of  these  figures  with  those  given  in  the  text,  owing  to  the  fact  that  in 
the  '  war  years'  1914 — 1917  the  usual  relation  between  Bank  rat« 
and  London  rate  was  varied. 


1 38  TAe  Country  Banker,  [let.  xvm. 

more  or  less  dubious  in  character  and  difficult  of  reali- 
zation. He  expects  to  receive  his  money  when  due, 
and  it  will  be  an  evil  day  for  the  bank,  which  has 
mainly  to  look  to  such  securities  to  meet  the  demands 
of  its  depositors,  should  they  at  any  time  make  an 
attack  in  force  upon  its  immediate  resources.  Better 
a  thousand  times  let  deposits  go  past  you,  than  accept 
them  on  terms  which  oblige  you  to  petrify  them  into 
forms  of  asset  which  will  be  found  insoluble  into  money, 
when  your  need  for  money  is  at  its  worst.  That  time  has 
come  before  now  to  the  strongest  banks,  and  may  come 
again  ;  but  at  its  next  coming,  it  may  take  a  wider  and 
lower  range  than  in  1878,  and  assault  the  weaker  and 
less  guarded  points,  instead  of  the  Redans  and  Mala- 
khoffs  of  our  banking  system. 


Discount  on  Bills.  Your  rate  of  discount  will 
vary  with  the  quality  of  the  bills  themselves,  and  to 
some  extent  with  the  current  value  of  money.  A  bill, 
for  example,  drawn  by  a  first-class  house  abroad  on  a 
leading  house  at  home,  and  bearing  the  indorsement 
of  a  powerful  bank,  is  a  widely  different  instrument 
from  the  loan  bill  or  promissory  note,  or  even  the 
trade  bill  of  country  banking ;  and  would  command 
proportionately  easier  terms  in  the  matter  of  dis- 
count. 'Bank  paper'  is  in  fact  the  highest  form  of 
banking  asset  You  can  re-discount  and  turn  it  into 
money,  at  any  moment,  in  the  worst  of  times;  but 
in  respect  of  bills  of  inferior  grade,  the  re-discount 
market  is  uncertain  of  access  and,  in  a  panic,  is 
sometimes  closed  altogether.  Moreover,  you  can  rely 
upon  bank  bills  and  their  equivalents  being  met  at 
their  maturities.  You  may  in  fact  reckon  them  in 
advance,  as  assured  additions  to  your  cash  in  hand 
the  day  they  fall  due.  They  are  so  many  bank  notes 
in  a  latent  form.  When  you  wish  to  increase  your 
reserve    of    cash,    you    have   merely  to   restrict  your 


LET.  Win.]  Inte>'est  and  Discount.  1 39 

discount  of  such  bills,  and  those  running  off  will  of 
themselves  turn  into  money  and  accomplish  your 
desire. 

You  might,  it  is  true,  restrict  your  holding  of  Mr. 
Bowdler's  paper  and  the  like;  but  this  would  ivot 
serve  to  replenish  your  till  with  the  same  degree  of 
certainty.  Such  bills  are  not  to  be  reckoned  as  equal 
u>  so  many  bank  notes  on  the  days  of  their  maturity. 
They  will  no  doubt  be  paid  in  time,  but  not  necessarily 
at  your  time.  Neither  are  they  always  negociablc — 
there  are  times  when  you  could  not  re-discount  them  if 
you  would  ;  so  that  financially  they  are  all  but  valueless. 

But  betwixt  these  two  classes  of  bills — betwixt  the 
highest  quality  of  paper  and  the  lowest— comes  the 
inland  or  trade  bill ;  such  as  that  drawn  by  Cartridge  on 
Booker  &  Co.,  which  may  be  regarded  as  a  type  of 
by  far  the  largest  class  of  bills  known  to  provincial 
banking. 

The  trade  bill  is  as  inferior  to  bank  paper,  in  point 
of  quality,  as  it  is  superior  in  all  other  respects  to  the 
lower  class  of  bills.  You  can  rely  on  its  being  met 
when  due,  and  you  could  re-discount  it  in  any  con- 
dition of  the  money  market  short  of  panic;  although 
not  on  the  same  terms  on  which  you  could  *  melt '  bank 
paper.  For  that  and  for  other  reasons,  the  rate  for 
trade  bills,  whether  in  London  or  the  provinces,  will 
necessarily  rule  at  a  point  higher  than  that  current  for 
bank  paper. 

Nevertheless,  Mr.  Nayler  expects  you  to  take  his  bills, 
90  per  cent,  of  which  consist  of  trade  paper,  at  London 
rate  all  round.  Mr.  Nayler  is  of  those  who,  in  the  way 
of  a  bargain,  *  will  cavil  with  you  on  the  ninth  part  of  a 
hair.'  When  the  rate  for  deposits  in  London  is  less  than 
your  own,  Mr.  Nayler  prefers  the  good  old  country  rate ; 
but  when  the  rate  in  London  goes  above  your  average, 
he  holds  the  metropolitan  principle  to  be  the  only 
equitable  basis  of  price,  as  between  man  and  man.  It 
IS  true  that  when  Mr.  Nayler  asks  you  to  take  his 
promiscuous    paper   at   London   rate,   he  freely  gives 


f40  The  Country  Banker,  [let.  xvm. 

you  leave  to  charge  other  people  what  you  like,  which 
you  hold  to  be  an  exasperating  suggestion  :  but,  letting 
that  pass,  to  expect  you  to  work  at  '  London  rate '  for 
ordinary  trade  paper,  is  ridiculous.  That  rate  is  the 
quotation  for  A  I  bank  paper,  or  its  equivalents,  only — 
for  a  class  of  bill,  the  percentage  of  which  in  your  bill 
case  will  be  slight  in  the  extreme.  A  stray  one  will 
find  its  way  to  Oxborough,  at  intervals  more  or  less 
distant,  and  move  you  with  a  mild  surprise :  but  it  will 
be  more  of  a  curiosity  than  an  everyday  addition  to  your 
general  holding  of  bills.  And  that  being  the  case,  you 
will  have  to  scrutinize  such  rarely  seen  paper  with  extra 
care,  otherwise  you  may  find  some  day,  when  too  late, 
that  there  is  sometimes  only  the  difference  of  an  initial 
betwixt  the  signature  of  a  house  worth  a  million  and 
that  of  a  concern  worth  nothing  besides  the  name  it 
falsely  trades  upon. 

But  even  on  the  supposition  that  your  discounts  at 
Oxborough  consisted  wholly  of  bank  paper — I  say  that 
even  so,  you  would  not  stand  on  the  same  platform  with 
London  banks  and  Discount  houses,  and  therefore  could 
not  work  on  their  terms.  You  are  established  in 
Oxborough,  with  all  means  and  appliances  for  the  con- 
duct of  a  business,  larger  than  you  will  ever  command, 
perhaps,  but  which  are  necessary  to  work  the  business 
which  you  do.  You  have  brought  to  the  very  doors  of 
the  Oxborough  people  an  establishment,  not  much  to 
look  at,  it  may  be,  in  point  of  appearance,  being  but  a 
Branch ;  but  equal  in  all  other  respects  to  a  bank 
of  the  first  magnitude.  You  are  prepared  to  enter- 
tain and  to  carry  through  any  transaction,  whatever 
its  nature  or  amount,  that  any  other  bank  out  of 
London  can. 

But  whilst  your  discount  transactions  are  reckoned 
by  fifties  and  hundreds  of  pounds,  the  operations  of 
the  great  London  banks  and  bill  brokers  are  measured 
by  tens  and  hundreds  of  thousands.  And  the  same 
extent  of  book-entry   and    calculation   is   required   to 


/ 


LtT.  xviii.]  Interest  and  Utscount,  141 


pass  a  bill  for  £^0  through  the  books  of  a  bank,  as 
if  it  were  one  for  ^^5000.  Your  business,  therefore, 
is  worked  at  greatly  heavier  cost,  relatively  to  income, 
than  a  great  London  business  is.  The  enormous 
volume  of  their  transactions  enables  the  London 
banks  and  discount  houses  to  work  on  terms  of  dis- 
count at  which  your  business  would  starve.  If  you 
are  to  transact  a  discount  business  at  all  in  Oxborough, 
and  pay  your  expenses,  and  leave  something  towards 
dividend  ;  it  must  be  on  terms  necessarily  above  those 
of  London,  whether  for  first  class  bills  or  for  ordinary 
trade  paper. 

If  your  customers  generally  were  to  adopt  Mr.  Nayler's 
views,  Oxborough  Branch  would  cease  to  pay  its  ex- 
penses, and  would  have  to  be  shut  up. 

It  has  also  to  be  considered,  that  if  your  discount  rate 
never  sinks  to  the  low  level  which  sometimes  rules  in 
Lombard  Street,  neither  does  it  on  the  other  hand  ever 
mount  to  10  or  12  per  cent.  Your  clients  are  accustomed 
to  a  less  spasmodic  scale,  and  would  rather  work  upon 
one  that  seldom  lost  sight  of  $  per  cent,  very  far  either 
way,  as  a  rallying  point.  In  fact,  your  terms  of  dis- 
count must  be  governed,  more  by  tiie  rate  of  interest 
you  are  allowing  on  your  deposits,  plus  the  other 
expenses  of  your  Branch,  than  by  the  movements  of 
bank  rate,  with  which  the  daily  business  of  Oxborough 
has  no  visible  connection. 

Your  milliners  and  grocers,  your  butchers  and  bakers, 
your  woolstaplerb  and  clothiers,  do  not  regulate  theii 
transactions,  with  one  eye  upon  the  foreign  exchanges 
and  another  upon  the  reserve  in  the  Banking  Depart- 
ment. They  require  certain  produce  and  commodities 
to  replenish  their  stocks,  in  order  to  supply  the  daily 
wants  of  their  customers,  and  they  do  not  understand 
what  a  million  of  bullion  more  or  less  in  the  Issue 
Department  has  to  do  with  the  matter. 

Your  customers  hear,  no  doubt,  of  a  tightness  in  the 
money  market  and  a  heavy  drop  in  the  exchanges  ;  but 


142  The  Country  Banker.  [lw.  xvm. 

as  they  have  not  contributed  to  bring  about  the  one,  and 
do  not  understand  the  other,  they  object  to  being  incom- 
moded by  either.  Let  those,  they  say,  bear  it  who  have 
brought  the  trouble.  Because  the  Bouncers  and  Plungers 
of  commerce  all  over  the  world  have  been  speculating  in 
this,  or  '  cornering '  in  that,  and  brought  about  a  com- 
mercial crisis  and  a  money  panic — that  appears  an 
insufficient  reason  to  Mr.  Cartridge  why  his  usual  dis- 
count facilities  should  be  curtailed,  or  to  Mr.  Wheeler 
why  half  his  overdraft  should  be  called  up.  They 
have  had  no  hand  in  producing  the  crisis,  and  will 
deem  it  a  hardship  and  injustice  if  their  convenience  is 
sacrificed  to  set  it  right. 


Interest  on  Overdrafts.  The  £\oq^  advanced 
on  overdrawn  account,  and  the  same  amount  invested  in 
the  discount  of  a  negociable  bill  of  exchange,  are  widely 
opposed  transactions,  and  will  involve  different  condi- 
tions of  charge.  When  a  country  bank  covenants  with 
a  customer  that  he  may  overdraw  his  account  at  any 
time  to  the  extent  of  ;£icxx),  it  virtually  grants  him  the 
loan  of  that  amount  so  long  as  the  account  shall  con- 
tinue ;  but  with  this  important  concession  in  favour  of 
the  borrower,  that  interest  shall  be  charged  only  on 
the  balance  owing  from  day  to  day.  The  lodgments 
on  such  accounts  are  credited  with  the  same  rate  of 
interest  as  is  charged  on  the  payments. 

The  balance  owing  on  an  overdrawn  account,  therefore, 
being  of  the  nature  of  a  permanent  loan,  will  not  follow 
the  ups  and  downs  of  London  rate,  except  at  a  respect- 
ful distance.  It  will  never  touch  a  very  low  point,  but 
neither  will  it  rise  to  a  very  high  one.  Moreover,  as  in 
bills  of  exchange,  so  also  in  overdrawn  accounts,  there 
are  degrees  of  quality  ;  hence  some  difference  in  the 
terms  of  charge.  The  overdraft  which  is  constantly 
being  paid  off  and  drawn  out  again,  is  entitled  to  easier 
terms,  in  respect  of  interest,  than  the  account  which  is 
never  turned  creditor.     The  one  enables  you  to  make 


LIT.  xviii.i  Interest  and  Discount.  143 


frequent  use  of  the  money  in  other  directions,  the  other 
never. 

The  overdrafts  on  which  you  will  levy  your  highest 
rate,  will  be  those  which  have  assumed  the  character  of 
dead  loans,  but  in  respect  of  which,  for  special  reasons, 
you  may  be  reluctant  to  take  the  extreme  course  of  call- 
ing them  up.  The  imposition  of  an  extra  rate  will  pro- 
bably have  the  result  you  desire,  without  touching  the 
susceptibilities  of  this  class  of  borrowers,  who  will  consist 
for  the  most  part  of  persons  ignorant  of  business,  and 
who  look  upon  5  per  cent,  as  the  furthest  limit  of  legal 
usury — beyond  which  lies  perdition  to  the  man  who 
borrows. 


LETTER    XIX. 

BANK   CHARGES, 

H^nce  it  is,  that  though  prejudice  is  so  far  softened,  as  to  ac' 
awesce  in  the  lender^ s  making  some  advantage,  lest  the  borrower 
inould  lose  altogether  the  benefit  of  his  assistance;  yet  still  the 
borrower  is  to  have  all  the  favour  ;  and  the  lender's  advantage  is 
for  ever  to  be  clipped  and  pared  down  as  low  as  it  will  bear. 

Defence  of  Usury. 

On  a  certain  class  of  accounts  you  make  a  charge 
for  commission  ;  the  rate  of  charge  being  governed 
by  the  nature  of  the  account  itself  and  the  description, 
number,  and  amount  of  the  transactions  passing 
through  it. 

There  are  accounts  in  England,  the  lodgments  on  which 
are  all  in  Bank  of  England  notes,  or  gold  of  standard 
weight ;  the  balances  are  always  in  favour  of  the  custo- 
mer, and  the  cheques  drawn  upon  them  are  all  paid 
across  the  Bank's  own  counter.  On  such  accounts  no 
commission  is  charged  ;  but  on  the  other  hand,  no  interest 
is  allowed  on  the  balances  in  hand  of  the  Bank. 

If  one  had  to  picture  to  himself  a  banking  Eutopia,  it 
would  be  ledgers  teeming  with  such  accounts  and  none 
other ;  with  Treasury  bills  his  only  discounts,  and  Consols 
his  only  form  of  overdraft.  His  sole  debtor  being  the 
British  Government,  his  income,  if  restricted,  would  at 
least  be  assured,  and  the  haunting  fear  of  bad  debts 
would  cease  to  trouble  him. 

But  although  the  class  of  account  we  here  speak  of  is 
known  to  some  extent  to  London  banking,  and  here  and 
there  perhaps  in  our  larger  commercial  centres,  it  is 
rarely  met  with  in  rural  parts.  There  is  probably  no 
such  account  on  your  books  at  Oxborough.  If  there 
were,  you  would  be  ready  and  willing  to  conduct  it  on 
London  terms.  That  is  to  say,  you  would  charge  no 
commission  upon  it ;  but  you  would  expect  a  certain 
balance  to  be  kept  at  the  credit  of  the  account,  and  on 


urr.  XIX.]  Bank  Charges  145 

this  balance  you  would  allow  no  interest ;  you  would 
accept  the  use  of  the  money  in  lieu  of  commission. 

The  balance  thus  left  in  your  hands  would  be  governed 
in  amount  by  the  nature  and  working  of  the  account 
You  would  require,  for  example,  a  larger  balance  with 
an  account  turning  over  ;£  10,000  a  year,  than  with  one 
on  which  the  turn-over  was  only  half  that  amount. 
Again,  if  the  cheques  drawn  upon  the  account  should 
average  £20  each,  you  would  require  a  larger  balance 
to  be  kept  at  its  credit,  than  if  the  cheques  averaged 
;^ioo  each ;  because  in  the  one  case  you  would  have  500 
different  payments  to  make  on  the  account ;  in  the 
other  only  100.  The  extent  of  book  entry  alone  would 
be  as  five  to  one.  It  would  require  five  times  as  many 
ledgers  to  hold  the  one  class  of  accounts,  as  would  suffice 
to  contain  the  other,  and  five  times  the  staff  of  book- 
keepers to  write  them  up. 

But,  as  already  stated,  this  class  of  account  is  prac- 
tically unknown  in  rural  districts.  The  payments  to 
the  credit  of  a  country  bank  account  will  not  consist 
exclusively  of  Bank  of  England  notes  or  gold  of  stan- 
dard weight.  On  the  contrary,  these  will  form  as  a 
rule  but  a  slight  percentage  of  the  lodgments.  The 
circulating  medium  of  the  provinces  is  not  of  uniform 
quality,  and  the  par  of  most  of  its  components  is 
nominal.  Some  three-fourths  of  the  provincial  circula- 
tion consist  of  sovereigns  and  half-sovereigns,^  of  which 
over  fifty  per  cent,  are  below  standard  weight.  Side  by 
side  with  these  circulate  the  four  millions  of  country 
bank  notes,^ which  have  the  defect  of  not  being  legal 
tender,  and  have  for  the  most  part  to  be  remitted  to 
London  to  be  converted  into  that  medium.  Then 
come  cheques  and  drafts  on  other  banks,  dividend 
warrants,  interest  coupons,  post  office  orders  and  bills, 

1  The  European  War  has  changed  all  this.  At  present  (Decem- 
ber, 19 1 7)  currency  notes  for  ^^i  and  los.  take  the  place  of  sovereigns 
and  half-sovereigns. 

■  The  total  authorized  note  issue  of  the  English  provincial  banks 
in  November,  1917  was  ^^3 3 4, 820,  and  the  average  circulation  for  the 
week  ending  the  3rd  November,  191 7,  was  only  ;^i 50,940.  The 
decrease  is  due  to  the  lapse  of  issues  owing  to  amalgamations,  etc. 


146  The  Country  Banker,  [let.  xix. 

for  collection,  wherever  these  articles  may  be  payable 
within  the  limits  of  the  United  Kingdom.  Last,  but  not 
least,  you  have  to  take  into  account  the  silver  in  circu- 
lation. This  will  come  to  you  plenteously,  in  packets  of 
£^  or  £\Q  each,  or  direct  from  your  customers'  pockets 
in  promiscuous  handfuls,  embracing  specimens  of  our 
silver  coinage  from  a  three-penny  bit  to  a  crown  piece. 

The  items  here  enumerated,  with  a  sprinkling  of  Bank 
of  England  notes  and  heavy  gold,^constitute,  in  varying 
proportions,  the  ordinary  lodgment  to  the  credit  of  your 
customers'  accounts. 

Nevertheless,  Mr.  Bagster  would  have  you  treat  the 
whole  as  ready  cash.  He  would  expect  you  to  pass  this 
miscellany  of  currency,  without  charge  or  abatement, 
straightway  to  a  man's  credit ;  just  as  if  the  entire  lodg- 
ments were  in  crisp  Bank  of  England  notes,  or  gold  fresh 
from  the  Mint. 

But  it  is  manifest  that  before  such  media  can  be  re- 
garded or  treated  as  *cash,'  they  must  undergo  transmu- 
tation ;  they  must  be  realized,  before  they  can  become 
usable  money.  You  must  send  all  country  notes,  for 
example,  which  are  not  redeemable  in  Oxborough,  to 
your  London  agents  for  collection.  You  must  despatch 
the  cheques,  bills,  coupons,  and  the  like  to  every  point 
of  the  compass  at  which  they  are  payable,  and  await 
their  payment  in  London,  before  they  can  become  cash 
to  you.  You  must  send  your  gold  and  silver,  at  your 
own  risk  and  charge,  to  the  wage-paying  districts  where 
it  is  wanted;  or  it  will  accumulate  on  your  hands  at 
still  greater  cost  and  sacrifice.  It  will  be  seen,  there- 
fore, that  well  nigh  every  lodgment  to  the  credit  of  a 
Country  bank  account,  involves  the  Bank  itself  in  ex- 
pense, before  the  items  of  the  lodgment  can  be  turned 
into  actual  money  or  legal  tender. 

It  is  different  with  the  currency  of  Scotland.  The 
circulating  medium  of  that  part  of  the  Kingdom  con- 
sists almost  exclusively  of  bank  notes,  which,  although 
not  legal  tender  by  Act  of  Parliament,  are  universally 
iccepted  as  such,  which  amounts  to  much  the  same 
^  See  note  ^  to  p.  145. 


LKT.  XIX.  Bank  Charges,  147 

thing.  They  require  no  process  of  conversion  to  turn 
them  into  money,  because,  to  all  intents  and  purposes, 
they  arc  already  money,  and  have  as  great  circulative 
capacity  North  of  the  Tweed  as  Bank  of  England  notes 
have  on  this  side  of  it 


Payments  to  Debit.  Turning  now  to  the  debit 
side  of  a  country  bank  account,  it  also  has  features 
of  its  own.  The  outdrawings  upon  it  do  not  consist 
exclusively  of  cheques  presented  at  your  counter  and 
cashed  out  of  your  till.  On  the  contrary,  transactions 
of  this  nature  are  the  exception  and  not  the  rule. 
The  items  debited  to  the  account  will  consist  partly, 
often  largely,  of  the  customer's  acceptances  payable  in 
London,  which  you  have  retired  for  him  ;  partly  of  his 
cheques  which  he  has  sent  to  various  parts  of  the 
kingdom,  and  which  you  have  redeemed  for  him  directly 
through  other  banks,  or  indirectly  through  the  Clearing  ; 
partly  of  drafts  or  letters  of  credit  which  you  have 
drawn  upon  your  London  or  other  agents  to  his  order ; 
and  partly  in  cheques  paid  in  cash  across  your  counter. 

On  each  of  these  transactions,  with  the  exception 
of  the  last,  you  have  yourselves  to  pay  a  commission, 
either  to  your  London  agents  or  to  other  banks. 
They  cannot  afford  to  transact  your  business,  without 
some  charge  for  the  doing  of  it.  They  have  the  salaries 
of  their  Managers  and  clerks,  their  rents  and  taxes  and 
other  expenses  to  pay,  which  they  would  find  an  obvious 
difficulty  in  doing,  if  they  conducted  their  business  for 
nothing. 

The  working  of  every  account  in  his  books,  therefore, 
subjects  a  country  banker  to  expense  on  both  sides  of  it, — 
the  expense  of  converting  miscellaneous  lodgments  into 
legal  tender  on  the  one  side,  and  the  remuneration  of 
the  Bank's  London  and  other  agents  for  services 
rendered  by  them,  on  the  other. 

It  is  the  practice  of  some  banks  tcK  make  a  separate 
charge  on  each  transaction,  debtor  or  creditor,  as  it  arises, 

L  a 


148  The  Country  B anker »  [let.  xix. 

which  is  subject  to  commission.  The  banks  in  Scotland 
do  so,  and  work  upon  a  scale  which  indicates  some  sixty- 
varieties  of  charge. 

The  usage  of  most  English  country  banks  is  diflferent. 
Instead  of  a  separate  levy  on  each  transaction  as  it 
arises,  the  banks  make  one  charge  at  the  end  of  the  half 
year  ;  and  this  is  usually  in  the  form  of  a  percentage  on 
the  total  outdrawings  on  the  account  for  the  six  months, 
whatever  they  may  consist  of.  The  process  is  admittedly 
less  exact  than  the  Scotch  method,  but  it  comes  to  much 
the  same  thing  in  the  end,  as  far  as  the  customer  is  con- 
cerned, and  it  has  the  merit  of  simplicity. 

It  is  true  that  no  two  banking  accounts  arc  alike  in 
every  particular.  There  is  not  a  single  account  on  your 
books  which  is  the  exact  counterpart  of  another :  but 
you  know  what  the  working  of  your  accounts  costs  you 
as  a  whole,  and  can  therefore  arrive  at  a  rate  of  com- 
mission which  will  be  a  fair  average  charge  all  round. 

No  doubt  there  are  exceptional  accounts  which  no 
average  will  fit.  In  respect  of  these  you  may  have  to 
exceed  your  average  in  some  cases,  and  to  go  below  it  in 
others.  Other  accounts,  again,  the  operations  on  which 
consist  of  transactions  which  put  you  to  little  cost  and 
less  trouble,  it  may  suit  you  to  conduct  for  a  fixed  sum 
per  annum,  based  on  the  number  of  cheques  and  magni- 
tude of  turn-over. 

Let  us  say  then  that  your  average  rate  of  commission 
is  one-eighth  per  cent,  on  the  outdrawings  of  a  current 
account.  That  will  be  equal  to  a  charge  of  fifteen  pence 
per  hundred  pounds  on  both  sides  of  it.  That  will  be 
the  rate  of  charge,  out  of  which  you  have  to  provide  for 
agents'  commission,  expense  of  transmission  of  notes  and 
specie,  loss  on  light  gold,  rent,  taxes,  stationery,  and 
incidents,  and  all  risks  of  forgery,  fraud,  miscarriage; 
burglary,  or  embezzlement.  You  have  to  make  provi- 
sion for  all  these  out  of  your  one  shilling  and  three- 
pence per  hundred  pounds ;  and,  if  there  is  anything 
over,  it  can  hardly  amount  to  an  extravagant  recogni- 
Uon  of  the  services  of  yourself  and  staff". 


LET.  xix.]  Bank  Charges,  149 

But  as  against  your  charge  for  commission,  your 
customer  has  a  substantial  set-ofL  You  allow  him 
interest  from  day  to  day,  on  the  balance  at  his  credit, 
however  much  it  may  fluctuate.  But,  under  the  London 
system,  no  interest  is  allowed  on  the  fluctuating  balance 
of  a  current  account ;  so  that  practically  it  comes  to 
much  the  same  thing,  whether,  as  a  question  of  loss  or 
gain,  a  running  account  is  kept  on  the  one  system  or 
the  other. 

But  there  is  one  material  point  of  difference.  Under 
the  London  system,  a  man  is  expected  never  to  reduce 
his  balance  below  a  certain  agreed-on  figure.  He  has 
thus  practically  to  lock  up  a  portion  of  his  capital  in  his 
bank  account,  and  lose  the  use  of  it  in  his  business ; 
whereas,  under  the  provincial  system,  he  can  at  any 
time  withdraw  his  balance  to  the  last  sixpence, 
without  incurring  the  penalty  of  having  to  close  the 
account. 

Let  us  take  the  case  of  your  customer  L.  S.  D.,  the  over- 
turn on  whose  account,  debtor  and  creditor,  is  ;^8ooo 
a  year,  and  your  commission  on  which  is  ;^5.  There  is 
no  set-off  against  this  charge,  because  L.  S.  D.  leaves  no 
money  in  your  hands  at  the  credit  of  the  account :  he 
prefers  to  employ  the  whole  of  his  means  in  his  own 
business. 

But  let  us  suppose  that  he  shall  elect  to  work  on  the 
London  principle  ;  and,  instead  of  paying  commission, 
shall  leave  a  balance  in  your  hands  not  bearing  interest, 
and  that  the  balance  thus  left  is^f  200.  What  the  annual 
return  on  his  capital  may  be  will  depend  on  circum- 
stances; but  it  must  be  an  indifferent  sort  of  trading  that 
will  not  yield  an  annual  return  of  10  per  cent. 

By  locking  the  ;^200  up  in  his  bank  account,  there- 
fore, he  loses  ;^20  a  year  of  profit  on  his  capital:  in 
other  words,  the  working  of  his  account  on  the  London 
principle  costs  him  ;^20  a  year ;  whereas  under  yours,  the 
cost  to  him  is  £^  only. 

Commission  on  Overdrafts.    We  have  thus  far 


1 50  The  Country  Banker.  [let.  xix. 

dealt  with  the  ordinary  charges  on  accounts,  the  balances 
of  which  are  always  at  the  credit  of  customers.  We  now 
turn  to  the  commission  on  accounts,  the  balances  of 
which  are  always  overdrawn. 

An  average  sample  of  the  overdrawn  account  of 
country  banking  will  be  found  in  that  of  your  customer 
Mr.  Silas  Wheeler.  The  authorised  limit  of  advance  is 
;^iooo,  of  which  he  steadily  avails  himself,  and  the  out- 
drawings  amount  to  ;^  10,000  a  year.  The  lodgments  to 
the  credit  of  the  account  are  of  the  usual  mixed  cha- 
racter of  the  provincial  currency;  whilst  the  outdrawings 
are  akin  to  those  on  other  accounts,  except  that  they 
consist  for  the  most  part  of  Wheeler's  acceptances  pay- 
able in  London.  The  cash  transactions  to  the  debit  are 
few  and  of  limited  amount. 

If  the  balance  of  the  account  were  always  in  his 
favour,  your  charge  upon  it  would  be  an  eighth  per 
cent,  on  the  outdrawings,  as  in  the  case  of  other  creditor 
accounts ;  but  inasmuch  as  the  balance  is  always  at 
his  debit,  you  charge  him  an  additional  eighth  per 
cent. 

One-half  your  charge,  therefore,  is  virtually  a  del 
credere  commission,  or  provision  against  loss ;  and 
amounts,  in  the  case  of  Mr.  Wheeler,  to  threepence  in 
the  pound  on  the  amount  of  advance.  Adopting  his 
account  as  an  average,  and  taking  the  overdrafts  at 
your  Branch  at  j^20,ooo,  this  annual  provision  against 
loss  would  amount  to  ;^250 ;  and  if  you  will  cast  up 
your  losses  on  this  form  of  account  for  any  given 
number  of  years  back,  you  will  find  that  a  fund  thus 
set  apart  and  frugally  nourished,  will  never  have  much 
of  a  balance  at  its  credit ;  if  indeed  the  balance  shall  not 
at  times  emphatically  incline  the  other  way. 

Your  extra  charge  then  on  Mr.  Wheeler's  account, 
by  reason  of  its  being  overdrawn,  amounts  to  £12  ioj. 
a  year;  but  against  this  there  is  likewise  a  set-off: 
because  you  sanction  repayments  in  reduction  of  the 
balance,  in  dribblets  day  by  day  ;  and  on  these  dribblets 
you  allow  the  same  rate  of  interest  that  you  charge  on 


L«T.  xncj  Bank  Charges,  151 

the  account.  If  the  rate  is  5  per  cent.,  you  allow  him 
to  bank  his  money  with  you  at  that  rate  from  day  to  day, 
in  anticipation  of  his  acceptances  or  other  payments 
coming  due  ;  and  the  interest  on  these  fugitive  lodg- 
ments goes  far  to  extinguish  the  extra  charge  of  com- 
mission on  the  account. 

There  is  one  other  point  of  view  from  which  to  regard 
the  overdrawn  account  of  English  country  banking.  Mr. 
Wheeler  pays  for  the  bulk  of  his  purchases  by  acceptance 
at  three  months'  date.  But  if  he  paid  in  cash  instead,  he 
would  be  allowed  a  discount  of  2J  per  cent.  The 
;^iooo  you  lend  him  enables  him  to  pay  in  cash, 
instead  of  by  acceptance,  for  ;£'4000  worth  of  goods 
within  the  year,  on  which  the  trade  discount  would  be 
£\QO.  He  has  this  to  set  against  your  charge  for  interest 
and  commission  upon  his  account,  which  amounts  at  the 
outside  to  ;^75.  So  far  then  from  his  dealings  with  you 
putting  him  to  expense,  they  leave  him  with  some  five 
and  twenty  pounds  annually  in  pocket. 

But  Mr.  Bagster  remains  unconvinced,  and  still  in- 
veighs against  commission  in  the  abstract.  It  is  looked 
upon  indeed  as  his  strongest  point,  and  he  is  reluctant 
to  give  it  up.  When  he  desires  therefore,  in  a  general 
way,  to  be  informed  on  what  pretence  a  bank  makes  a 
charge  for  paying  a  man  his  own  money  back  again,  he 
has  the  bar  parlour  with  him,  you  tell  me,  to  a  man. 

But  it  is  not  his  own  money  back  again  which  a 
customer  gets  from  a  country  bank.  His  own  money, 
for  the  most  part,  would  have  consisted,  as  we  have 
seen,  of  gold  light  of  weight,  loose  silver,  cheques  on 
distant  banks,  and  so  forth  :  in  exchange  for  all  which 
he  expects  to  receive,  and  does  receive  from  the  Bank, 
actual  money  of  account,  or  legal  tender. 

It  is  unfortunate  also  for  Mr.  Bagster's  point,  that  you 
charge  no  commission  on  the  greater  number  of  your 
accounts.  You  make  no  charge  on  the  withdrawal  of 
sums  which  have  been  placed  with  you  on  deposit 
receipt  or  deposit  account,  no  matter  how  mixed  the 


152  The  CounUy  Banker.  [let.  xix. 

items  of  value  which  created  the  deposits  may  have 
been.  You  thus  make  a  distinction  betwixt  accounts, 
the  balances  of  which  you  can  make  use  of,  and  those, 
the  balances  of  which  are  here  to-day  and  gone  to- 
morrow. If  Mr.  Bagster  worked  his  own  business  on  the 
terms  on  which  he  would  have  you  conduct  yours,  he 
and  his  family  would  soon  be  on  the  parish. 

Without  endorsing  the  strong  language  which  you 
apply  to  the  whole  tribe  of '  screws  ;'  one  can  understand 
your  inward  enjoyment  when  you  had  to  inform  Mr. 
Nayler,  that  the  large  advance  on  overdraft  for  which 
he  had  applied  to  the  Directors,  had  been  refused ;  for 
the  sufficient  reason  that  the  unprofitable  nature  of  his 
account  did  not  warrant  the  advance.  The  loan  of  the 
money  at  the  time,  and  for  the  purpose  to  which  Mr. 
Nayler  meant  to  apply  it,  would  have  yielded  him  a 
profit  many  times  greater,  you  affirm,  than  all  his 
cheese-parings  in  discount  and  commission  for  twenty 
years  put  together. 

A  banker,  after  all,  is  only  an  average  human  being. 
He  is  not  influenced  by  the  emotions  in  his  dealings,  it 
is  true  :  but  he  has  a  just  perception  of  the  principle  of 
*  give  and  take,'  in  business. 

He  is  naturally  disposed,  therefore,  to  deal  liberally 
with  those  who  deal  liberally  with  him.  He  does  not 
relish  habitual  attempts  to  beat  down  his  current  rates 
of  charge,  as  if  he  were  a  cheap  Jack,  with  half  a  dozen 
prices  for  the  same  thing.  His  rates  are  not  arrived  at 
by  rule  of  thumb,  but  are  based  on  observation  and 
experience ;  and  he  dislikes  to  huckster  with  meanness 
or  capitulate  to  greed.  You  cannot  make  an  abatement 
in  your  ordinary  scale  of  charges  to  any  one  client 
without  putting  the  scale  itself  in  jeopardy. 

If  you  agree  to  work  A.'s  account  at  a  fraction  less 
than  your  usual  rate  of  charge,  you  may  find  yourself 
unable  to  refuse  a  like  concession,  in  the  long  run,  to  the 
whole  alphabet  of  your  customers.  You  may  descry  ex- 
ceptional features  in  A.'s  account ;  but  your  clients  have 
not  your  trained  business  vision,  and  will  not  see  things 


LKT.  XIX.]  Bank  Charges,  1 53 

with  your  eyes.  It  will  fare  with  your  punctured  scale 
of  charges  as  with  the  letting  out  of  water — it  will  sink 
in  time  to  the  point  at  which  you  tap  it. 

A  man  loses  nothing  in  the  long  run,  by  leaving 
the  charges  on  his  account  and  bills  to  his  banker's 
sense  of  fairness  and  right.  It  would  be  strange  if, 
in  the  course  of  events,  an  opportunity  did  not  arise, 
which  would  enable  a  banker,  in  one  way  or  another, 
to  repay  such  confidence  with  usury.  But  neither 
does  Mr.  Nayler  nor  Mr.  Bagster  see  this.  The  man 
who  never  troubles  his  head  nor  tries  his  banker's 
patience  about  the  charges  on  his  account,  betrays,  in 
their  estimation,  something  like  softening  of  the  brain  ; 
and  they  have  yet  to  learn  tliat  in  dealing  with  one's 
banker,  a  penny  saved  is  not  always  a  penny  gained. 

And  whilst  you  are  jealous  to  guard  and  uphold  your 
own  terms  of  business,  do  not  begrudge  their  proper 
charges  to  others.  Do  not  chaffer  with  a  man  about  his 
customary  commission  and  try  to  beat  it  down,  especi- 
ally if  he  is  poor  and  must  submit  to  your  fiat,  whatever 
It  may  be.  The  Bank  which  shall  acquire  a  reputation 
for  meanness  will  find  itself  put  to  the  screw  whenever 
occasion  offers  ;  whereas  if  it  shall  act  in  a  liberal  spirit 
in  all  its  dealings,  its  liberality  will  bear  fruit.  It  will 
secure  to  the  institution  the  breath  of  popular  favour  ; 
and  that  has  a  perceptible  influence  in  directing  fresh 
business  to  a  bank. 


LETTER    XX. 

CIRCULATION. 

The  bankSf  these  traders  seem  to  have  thought,  could  extena 
their  credit  to  whatever  sum  might  be  wanted^  without  incurring 
any  expense  besides  that  of  a  few  reams  of  paper. 

Wealth  of  Nations. 

One  of  the  customary  services  which  a  bank  renders 
to  the  community,  and  for  which  it  is  but  poorly 
recompensed,  is  the  transmission  of  money  to  other 
places  on  behalf  of  its  clients ;  whereby  they  are 
enabled  to  make  payments  in  all  parts  of  the  Kingdom, 
and  are  saved  the  risk,  expense,  and  trouble  of  taking 
the  money  to  such  places  themselves. 


Drafts.  When  one  of  your  customers,  or  the 
traveller  for  a  commercial  house,  wishes  to  make  a 
payment  in  London,  Manchester,  or  elsewhere ;  the 
medium  usually  employed  is  the  draft  of  your  Bank 
on  its  London  agents,  in  favour  of  the  person  or  firm 
to  whom  the  money  has  to  be  paid. 

This  draft  will  be  drawn  payable  either  on  demand  or 
at  a  certain  number  of  days  after  date,  according  to  the 
wishes  of  the  remitter.  On  a  draft  payable  so  many 
days  after  date,  you  make  no  charge,  because  the  use  of 
the  money  during  the  currency  of  the  draft  is  supposed 
to  yield  you  a  sufficient  profit  on  the  transaction.  If 
instead  of  a  draft  after  date,  one  on  demand  is  preferred, 
you  charge  a  commission  upon  it  which  will  be  governed 
in  rate  by  the  description  of  currency  which  you  receive 


LST.  XX.1  Circulation,  155 

in  exchange.  A  rate  that  would  be  remunerative  when 
the  value  received  was  in  Bank  of  England  notes,  or 
heavy  gold,  might  be  the  reverse  of  profitable,  when  the 
value  received  was  mainly  in  unconverted  media,  such  as 
cheques  on  distant  banks,  gold  of  dubious  weight,  and 
a  heavy  percentage  of  silver. 

When  you  issue  a  draft  after  date,  your  usage  is  to 
draw  at  fourteen  days,  but  you  hear  of  other  banks 
drawing  at  shorter  dates  ;  for  which,  however,  there  may 
be  adequate  reason. 

If  Oxborough  were  in  a  large  wage-paying  district,  for 
example,  and  you  required  constant  remittances  of  specie 
from  your  other  Branches  to  supply  the  demand  for 
wage  money,  it  might  suit  you  to  take  gold  and  silver 
from  commercial  men,  or  anybody  else,  against  drafts 
at  less  than  14  days'  date ;  for  the  obvious  reason  that 
by  thus  receiving  money  on  the  spot,  you  save  the  ex- 
pense and  risk  of  bringing  it  from  elsewhere.  But  if 
your  position  at  Oxborough  is  that  of  most  agricultural 
towns,  and  you  have  constantly  to  remit  to  your  Head 
Office  specie  for  which  you  have  no  use  at  the  Branch, 
then  clearly  the  issue  of  drafts  at  seven  or  ten,  or  even 
fourteen  days*  date,  is  not  a  description  of  business  to 
make  a  fortune  by. 

On  drafts  payable  on  demand,  you  quote  your 
ordinary  rate  of  charge  at  one-eighth  per  cent.  This 
half-crown  per  hundred  pounds  has  to  cover  the  cost  of 
converting  the  circulative  media  of  the  provinces  into 
cash,  commission  to  London  agents,  and  the  risk  of 
transmission. 

What  would  be  the  proportion  of  the  half-crown,  to  set 
aside  to  cover  this  last  item  alone,  is  easy  of  estimate. 
The  leading  railway  companies  put  it  at  one  shilling 
per  ;f  100.  They  will  guarantee  the  safe  carriage  and 
delivery  of  a  remittance  of  specie  at  that  rate.  You 
have  therefore  to  part  with  40  per  cent,  of  your  commis- 
sion to  the  railway  companies,  or  adopt  the  risk  of  trans- 
mission yourselves. 


156  The  Country  Banker.  [let.  xx. 

Supposing,  then,  that  your  messenger,  in  conveying 
your  weekly  parcel  of  specie  to  Head  Office,  gets  robbed 
by  the  way,  on  some  unhappy  occasion  ;  and  that  the 
parcel  contains  £  icxx).  If  it  were  made  the  penalty  for 
his  carelessness  that  he  should  redeem  the  loss  by  greater 
care  in  future  acts  of  transmission,  he  would  have  to 
convey  two  thousand  parcels  of  ;^icxx)  each  without  loss 
or  mischance :  a  penance,  which,  reduced  to  figures, 
would  take  him  eight  and  thirty  years  to  accomplish. 

There  are  people,  nevertheless,  who  prefer  to  be  their 
own  transmitters  of  money,  and  who  carry  sometimes 
large  amounts  in  bank  notes  or  gold  about  with  them 
from  place  to  place,  to  make  purchases  or  settle  accounts, 
rather  than  pay  the  cost  of  a  draft  or  letter  of  credit. 
The  saving,  as  we  have  seen,  can  only  be  put  at  half-a- 
crown,  at  the  outside,  on  every  hundred  pounds  thus 
carried  about. 

For  this  charge,  you  will  open  a  credit  for  a  man  at 
any  of  your  Branches  or  agents,  against  which  he  may 
draw  in  the  town  where  his  payments  have  to  be  made, 
to  the  exact  amount  he  has  to  disburse :  so  that  he  need 
have  no  balance  to  bring  back  with  him  after  dark,  from 
fair  or  market,  at  the  risk  of  being  robbed  by  the  way, 
or  by  a  worse  chance,  knocked  on  the  head. 

On  the  other  hand,  if  a  customer  has  to  collect  or 
receive  money  in  other  towns,  the  money  has  simply  to 
be  paid  to  your  Branch  or  agents  at  the  place  ;  and  you 
will  pass  it  to  his  account,  on  exactly  the  same  conditions 
as  if  the  money  had  been  paid  to  his  credit  across  your 
counter. 


Own  Notes.  You  are  entitled,  under  the  Act  of  1844, 
to  issue  these  to  a  limited  extent. 

You  take  from  customers  the  notes  of  distant  banks, 
or  cheques  upon  them,  or  gold  of  average  lightness,  or 
silver,  or  anything  else  in  monetary  shape,  and  give 
them  your  own    notes    in   exchange,   free  of    charge. 


LET.  XX.]  Circulation.  157 

For  every  ;f  100  in  mixed  value,  you  are  always  pre- 
pared to  give  ;{;'I00  in  your  own  notes  to  a  regular 
holder,  without  abatement  or  charge  of  any  kind.  And 
you  do  this  for  the  simple  reason,  that  your  jiotes  thus 
issued  will,  on  the  average,  remain  in  circulation  a 
sufficient  length  of  time  to  more  than  cover  their  own 
expense,  as  well  as  the  cost  of  turning  into  cash  the  mis- 
cellaneous value  received  by  you  in  exchange  for  them. 

I  use  the  term  regular  holder,  because  you  would 
not  give  your  own  notes  free  of  charge,  in  exchange 
for  light  gold  or  its  equivalents,  to  anyone  who, 
you  have  reason  to  suspect,  would  straightway  cut 
them  in  halves,  and  dispatch  them  by  the  first  post  as  a 
remittance  to  London  or  somewhere  else.  The  notes, 
thus  mutilated,  will  go  to  your  debit  at  your  London 
agents,  where  they  are  redeemable,  possibly  next  day, 
and  you  will  have  to  pay  a  commission  for  their  redemp- 
tion. The  notes  will  then  be  sent  back  to  you  at  the 
risk  and  cost  of  a  double  transmission  by  post  They 
will  be  sent  from  London  to  your  Head  Office,  and  then 
by  your  Head  Office  to  you  ;  and  when  the  notes  come 
to  hand,  your  junior  apprentice  will  have  the  hateful  task 
of  re-uniting  the  severed  halves  with  gum-plaster.  It  is 
needless  to  observe,  that  the  issue  of  your  own  notes 
under  these  conditions,  would  be  more  fertile  of  loss  and 
irritation  than  of  profit  or  satisfaction. 

You  issue  them  free  of  charge,  in  exchange  for  notes 
of  other  country  banks,  to  cattle-dealers  and  others  from 
a  distance,  who  visit  your  fairs  and  markets  as  buyers, 
and  who  find  your  notes  the  popular  means  of  purchase  in 
your  neighbourhood,  and  will  thus  give  them  legitimate 
circulation. 

It  would  no  doubt  amaze  the  Governor  and  Company 
of  the  Bank  of  England,  if  they  were  informed  that  their 
notes  are  in  less  favour  and  request  than  your  own,  with 
certain  classes  in  your  district ;  and  that  to  ease  the 
minds  of  ignorant  holders,  you  have  sometimes  had  to 
indorse  the  notes  of  that  august  issuer,  or  give  your  own 
notes  in   exchange.     This    preference  for  local   notes 


158  The  Country  Bankef,  [let.  xx. 

prevails  more  or  less  in  rural  parts.  The  people  who 
get  your  own  notes  from  your  own  hands,  know  at  all 
events  that  they  are  genuine  ;  but  they  are  not  judges 
of  Bank  of  England  notes.  They  have  seen  notes  of  the 
Bank  of  Elegance,  which  to  their  eyts  looked  every 
whit  as  good.  When  they  receive  at  fairs  or  markets 
the  notes  of  the  great  issuer,  therefore,  they  not  seldom 
prefer  to  have  your  notes  instead ;  because  they  know 
where  they  are,  then,  and  are  freed  from  all  qualms 
about  forgeries. 

The  chief  circulators  of  your  notes  will  be  found 
amongst  your  ordinary  customers,  who  receive  and  pay 
them  away  in  preference  to  other  forms  of  currency,  in 
settlement  of  accounts,  or  the  payment  of  rents,  or  the 
adjustment  of  any  kind  of  transaction  which  involves 
the  use  of  money. 

The  right  of  private  issue  has  therefore  this  to  recom- 
mend it  It  is  an  advantage  to  the  issuer  himself ;  but 
he  at  least  shares  the  advantage  with  the  community, 
by  extending  to  it  many  facilities,  gratuitously,  which 
otherwise  would  be  subject  to  charge. 

But  Mr.  Bagster  has  views  of  his  own  as  to  the  right 
use  of  your  circulation.  He  holds  that  when  the  trading 
interests  of  Oxborough  are  at  stake — that  is  to  say,  in 
plainer  English,  when  certain  of  its  burgesses  are  hard 
up  for  money — it  is  mean  in  a  bank  like  the  District 
Union,  holding  nearly  three  millions  of  deposits,  to 
boggle  at  the  risk  of  a  few  thousands.  A  concern 
paying  an  annual  15  per  cent,  to  its  proprietors,  ought 
not  to  betray  this  narrowness  of  view  and  sordid  fear  of 
loss.  Moreover,  if  a  loss  does  arise,  he  contends  that 
you  can  fill  the  gap  up  with  your  own  notes,  which  cost 
you  nothing.  It  is  but  just  to  add  that  Mr.  Bagster 
would  deal  with  the  National  Debt  in  the  same  way : 
he  would  pay  it  off  by  the  issue  of  750  millions  of 
one- pound  notes  payable  to  bearer  on  demand. 

There  is  a  character  in  one  of  Mr.  Dickens*  novels 
who,  when  he  gives  his  acceptance  for  an  account, 
regards  the  debt  as  thereby  satisfied  and  discharged. 


MtT.  XX.1  Circulation,  159 

Mr.  Bagster  obviously  looks  upon  the  private  issuer  of 
notes  as  a  species  of  banking  Micawber. 

If  you  cannot  satisfy  Mr.  Bagster  and  his  disciples 
that  you  do  not  possess  the  gift  of  Midas,  you  will  at 
least  be  able  to  convince  them,  when  occasion  offers, 
that  you  are  not  furnished  with  his  ears  as  well 


LETTER    XXI. 

TI1£    USB.   OF   A    BANKER. 

Both  are  equally  absurd^  he  that  will  burn  his  taper  while  t/u 
sun  shinesy  and  he  that  will  go  to  bed  in  the  dark  to  save  the 
expense  of  light,  Feltham. 

Where  commission  is  charged  upon  the  outdrawings 
of  an  active  creditor  account,  the  charge  has  to  cover  a 
variety  of  services  to  the  customer,  besides  the  mere  con- 
version of  promiscuous  money's  worth  into  money. 

In  evidence  of  this,  let  us  take  the  account  of  your 
client  Mr.  Basil  Crofton  ;  which  affords  a  fair  average  ex- 
ample of  the  working  of  a  country  gentleman's  bank 
account.  Mr.  Crofton's  income  is  ;^4000  a  year,  and 
consists  chiefly  of  rents,  but  partly  of  dividends  on 
railway  stock,  interest  on  money  lent,  and  other  items. 
He  passes  the  whole  through  his  account,  the  lodgments 
on  which  are  therefore  of  the  usual  miscellaneous  de- 
scription. 

On  the  debit  side,  you  find  recorded  every  payment  he 
has  made  by  cheque  throughout  the  year.  The  cheques 
vary  in  amount,  from  annual  subscriptions  to  charities,  to 
the  larger  payments  to  tradesmen  and  others :  but  the 
average  is  ;^  20  a  cheque,  and  you  have  cashed  2CX)  of 
them  in  the  twelve  months.  You  have  received  £^ooo 
in  miscellaneous  value,  which  you  have  disbursed  for  him 
in  the  form  of  ready  money ;  and  your  charge  on  the 
account,  to  cover  all,  is  one-eighth  per  cent,  on  the  debit 
side,  or;^5  altogether. 

But  the  balance  at  Mr.  Crofton's  credit,  which  fluctuates 
very  greatly,  sometimes  touching  ;^500,  sometimes  ap- 
proaching vanishing  point,  but  averaging  £i^Q  for  the 


LET.  XXI.]  The  Use  of  a  Banker,  i6i 

twelve  months,  yields  a  material  set-off  against  this 
charge.  On  this  most  unstable  and  capricious  deposit, 
or  rather  series  of  fluctuating  balances,  you  allow  interest 
at  2\  per  cent,  from  day  to  day  :  this  comes  to  £'^  15J. 
and  reduces  your  charge  on  Mr.  Crofton's  account  to  five 
and  twenty  shillings  a  year. 

In  return  for  this  attenuated  allowance  and  humble 
rate  of  pay,  what  services  have  you  rendered  to  Mr. 
Crofton  ?  You  have,  for  one  thing,  protected  his  loose 
money,  or  money's  worth,  amounting  as  we  have  seen  to 
a  good  many  hundreds  at  times,  against  destruction  by 
fire  or  abstraction  by  theft.  These  risks,  such  at  they 
are,  you  have  adopted.  If  you  were  personally  attacked 
and  overcome  by  burglars,  and  your  safe  looted ;  or  if 
its  contents  were  reduced  to  tinder  by  fire,  neither  event 
need  cost  Mr.  Crofton  the  loss  of  an  hour's  sleep.  His 
money  would  be  safe,  because  you  would  have  to  make 
it  good  to  him,  whatever  stroke  of  evil  fortune  might 
light  upon  you  or  the  Bank. 

In  the  second  place,  you  have  made  200  payments  for 
him  in  the  course  of  the  year,  which  otherwise  he  must 
have  conducted  personally,  with  multifarious  goings  to 
and  fro,  and  the  needful  cash  at  risk  in  his  pocket. 

In  the  third  place,  you  keep  Mr.  Crofton's  accounts  for 
him.  Every  sum  paid  into  or  drawn  out  of  the  account, 
is  duly  entered  on  one  side  or  the  other  of  the  pass-book 
with  which  you  furnish  him  ;  and  which  thus  becomes  to 
him  a  cash-book  so  complete,  that  he  has  no  need  to 
keep  any  other. 

As  a  further  act  of  service,  you  give  safe-custody,  to 
the  extent  of  your  means,  to  his  title-deeds  and  other 
securities,  and  at  times  even,  if  you  have  room  and 
verge  enough,  to  the  family  plate-chest. 

If  he  requires  to  know  how  his  rents  and  other  revenues 
have  come  in,  he  has  merely  to  consult  the  credit  side  of 
his  pass-book,  where  he  will  find  them  recorded,  item  by 
item,  as  they  reached  your  hands,  with  detailed  exacti 
tude.  If  he  requires  to  know  what  portion  of  his  income 
he  has  spent,  and  how  ;  the  debit  side  of  his  pass-book 


t62  The  Country  Banker.  [let.  xxi. 

will,  with  equal  clearness  and  simplicity,  afford  the 
required  information.  Mr.  Crofton  does  not  draw  his 
cheques  in  favour  of  persons  under  the  mask  of  numbers, 
as  if  his  payees  were  limited  to  members  of  the  Police 
Force.  He  finds  it  more  useful  in  every  way  to  name  on 
every  cheque,  the  person  to  whom  he  wishes  the  money 
paid,  or  the  purpose  to  which  he  desires  the  money  to  be 
applied.  Every  cheque  he  draws  becomes  thus  a  supple- 
mental voucher  and  legal  acquittance  of  debt.  In  the 
event  of  his  receipted  accounts  perishing  by  fire,  or  being 
mislaid  or  lost,  and  a  dispute  arising  as  to  the  payment 
of  some  particular  account,  and  its  payment  is  demanded 
a  second  time  ;  the  cheque  wherewith  the  debt  was  dis- 
charged will  put  the  claimant  out  of  Court  with  ignominy, 
and  righteously  saddled  with  costs  on  both  sides. 

By  this  shrewd  dealing  with  his  money  matters,  />., 
by  passing  the  whole  of  his  income  through  his  bank 
account,  and  paying  for  everything  by  cheque, — Mr. 
Crofton  makes  you  his  private  treasurer  and  accountant. 

His  drawings  upon  you  during  the  twelve  months, 
although  only  two  hundred  in  number,  have  involved 
twelve  hundred  different  entries  and  calculations  in  your 
various  books — a  matter  which,  although  it  does  not 
concern  Mr.  Crofton,  is  of  some  importance  to  those  who 
have  the  entries  to  post,  and  the  interest  on  the  ever- 
changing  balance  to  work  out  day  by  day.  In  requital 
for  services  to  Mr.  Crofton,  in  the  performance  of  which 
you  become  his  confidential  clerk  and  almoner,  he  has 
to  put  his  hand  into  his  pocket  once  a  year  for  the  net 
douceur  of  five  and  twenty  shillings, — say  sixpence  a 
week.  Surely  nowhere  in  the  world  will  you  find  a 
larger  service  for  a  lower  wage  ? 

It  has  further  to  be  noted  that  the  man  who  keeps  a 
bank  account  greatly  simplifies  the  work  of  his  executors. 
His  pass-book  will  shew  the  whole  of  his  dealings  with 
his  money,  so  that  there  will  be  no  difficulty  in  tracing 
every  sum  that  he  has  received,  lent,  spent  or  invested, 
down  to  the  very  last.  But  if  a  man  resolve  to  keep 
his  accounts  '  in  his  head,'  as  some  do,  and  die  without 


LET.  XXI.]  The  Use  of  a  Banker.  163 

a  banker,  there  will  be  nothing  to  shew  what  moneys  he 
has  been  in  receipt  of,  nor  how  he  has  disposed  of  them, 
beyond  the  evidence  of  such  receipted  tradesmen's 
accounts  and  stray  securities  as  may  be  found  in  his 
strong-box,  if  he  has  one,  or  on  the  premises  generally, 
if  he  has  not ;  so  that  there  will  always  be  room  for  the 
uncomfortable  and  possibly  well-grounded  fear  that 
portions  of  his  estate  have  been  lost  to  his  family  from 
sheer  absence  of  record. 

You  are  persuaded,  nevertheless,  that  many  persons 
who  keep  bank  accounts  do  not  pass  the  whole  of  their 
cash  transactions  through  their  bankers;  the  temptation 
to  avoid  the  payment  of  a  small  commission  being  too 
great  for  them  to  withstand.  You  know  that  many  per- 
sons habitually  keep  money  at  home,  in  order  to  use  it 
direct,  in  the  payment  of  wages,  or  the  settlement  of 
purchases  or  debts. 

There  are  those  amongst  your  customers,  no  doubt, 
as  you  allege,  who  will  spend  precious  time  in  scheming 
how  to  save  a  shilling  in  the  commission  on  their  bank 
accounts.  To  gain  the  weather  side  of  their  bankers 
in  this  direction,  charms  some  natures  with  a  sense  of 
superior  tact,  and  a  pleasing  experience  of  the  penny 
saved. 

There  are  others,  to  whom  such  indulgence  in 
the  intricacies  of  vulgar  fractions  would  be  a  source 
of  cerebral  irritation,  and  who  prefer  to  work  their 
accounts  on  the  principle  of  an  arbitrated  sum  per 
annum.  To  a  man  of  this  temperament,  the  taxing  each 
transaction  as  it  arose,  with  the  commission  upon  it, 
would  be  intolerable.  His  books  and  yours  would 
never  balance.  The  discrepancies,  it  is  true,  would  be 
of  trivial  amount,  but  that  would  only  render  them  the 
more  irritating.  His  wound  would  be  great  because  it 
was  so  small. 

But  the  great  bulk  of  your  customers  are  people 
absorbed  in  business  or  trade,  to  whom  time  is  money, 
and  who  incline  to  the  principle  of  payment  in  ratio  to 
the  service  rendered.     They  desire  to  pay  neither  too 

M  a 


164  The  Country  Banker,  [let.  xxi. 

little  nor  too  much.  If  the  transactions  on  their  accounts 
amount  to  ten  thousand  a  year,  they  pay  on  that  sum  ; 
if  they  amount  to  twenty,  they  pay  on  twenty,  and  so 
forth.  They  go  on  the  principle  of  value  received ;  and 
thus  adjust  the  cost  of  their  accounts  to  the  necessities 
of  their  business. 

After  all,  this  matter  of  commission  is  merely  a  ques- 
tion of  expediency.  We  have  seen  that  a  gentleman 
with  an  annual  income  of  ;^4CX)0and  an  outlay  to  match, 
can  have  his  floating  cash  insured  against  fire  or  theft, 
the  whole  of  his  disbursements  made  and  duly  vouched 
for,  and  a  private  cash-book  supplied,  and  duly  posted 
for  him,  from  day  to  day,  for  a  charge  per  annum  hardly 
exceeding  the  price  of  a  stall  ticket  for  the  opera. 

If  a  man  prefers  nevertheless  to  act  as  his  own  banker, 
and  be  the  custodian  and  disburser  of  his  own  money, 
there  is  no  law  to  the  contrary.  He  will,  in  that  case, 
have  to  act  as  his  own  cashier,  and  make  all  his  pay- 
ments personally,  or  by  post.  He  will  have  to  keep  his 
own  cash-book,  if  he  is  to  have  anything  beyond  a 
hazy  notion  of  how  his  money  matters  stand  ;  and 
the  science  of  book-keeping  is  not  a  pleasing  study  to 
most  people,  nor  its  practice  a  favourite  pursuit.  If  he 
mislay  a  paid  account  or  receipt,  he  will  have  no  cheque 
to  fall  back  upon  as  its  legal  substitute.  Instead  of 
keeping  his  loose  money  at  the  Bank,  he  must  keep  it 
at  home  of  nights — possibly  under  his  pillow,  if  he  is  a 
nervous  man  ;  and  thus  instead  of  receiving  interest  upon 
it,  will  lay  it  out  at  alarming  usury  in  nightly  fears  of 
burglary  and  outrage. 

When  he  can  avoid  such  disturbing  fancies,  shirk 
private  book-keeping,  and  save  himself  all  risk  and 
trouble  in  the  receipt  and  disbursement  of  his  money,  by 
simply  passing  the  whole  of  it  through  a  bank  account, 
it  is  difficult  to  understand  why  anyone  should  hesitate 
to  do  so,  unless  he  has  still  to  read  Gilbart's  *  Ten 
minutes'  advice  about  keeping  a  banker,' — of  which,  in 
some  points,  this  letter  is  an  unavoidable  paraphrase 


LETTER   XXII. 

SALARIES. 

All  Mings  have  their  bounds  and  measures^  and  so  must 
liberality  amongst  the  resty  that  it  be  neither  too  much  for  the 
giver ^  nor  too  little  for  the  receiver ^  the  excess  being  every  jot  as 
bad  as  the  defect.  L'Estrange's  Seneca. 

You  ask  whether  it  would  not  be  possible  to  attach  a 
fixed  salary  to  each  Branch,  proportioned  to  its  profits,  and 
to  appoint  the  Managers  in  the  order  of  merit,  placing 
the  best  man  in  charge  of  the  leading  Branch,  the  second 
best  in  charge  of  the  second  best  Branch  and  so  on. 

But  a  fixed  salary,  on  the  principle  proposed,  might 
very  readily  become  a  fixed  injustice;  because  the 
profits  of  a  Branch  fluctuate  from  causes  over  which 
the  Manager  may  have  no  control.  If  your  scale  is  to  be 
governed  by  these  fluctuations,  its  fixity  is  gone :  if  not, 
then  its  equity  is  destroyed. 

But  let  us  follow  the  scheme  out  to  its  consequences, 
and  when  Manager  A.  dies,  or  retires,  then  as  a  matter  of 
right  B.  takes  his  place,  making  room  for  C.  who  is 
replaced  by  D.  and  so  downwards  ;  until  your  entire 
managerial  force  is  re-shuftled  and  you  start  a  new  game 
with  fresh  hands. 

Have  you  counted  the  mere  cost  of  removing  your 
thirty  Managers,  their  wives,  families  and  servants,  their 
goods  and  chattels,  from  one  Branch  to  another  every 
now  and  then,  like  children  of  the  desert  ?  Even  on  the 
supposition  that  the  members  of  your  provincial  staff 
should  come  to  relish  this  nomadic  form  of  existence, 
there  is  no  reason  to  believe  that  your  customers  would 
long  submit  to  it.    They  will  hardly  care  to  establish 


1 66  The  Country  Banker,  [let.  xxii. 

permanent  relations  with  Managers  who  will  be  as 
migratory  as  so  many  Bedouins. 

The  confidence  placed  in  the  Manager  of  a  bank  by  its 
customers  is  usually  great  and  frequently  intimate  ;  and 
this  confidence  is  not  willingly  transferred  to  a  stranger. 
A  man,  as  a  rule,  is  as  averse  to  changing  his  banker  as 
he  is  to  changing  his  lawyer  or  his  physician  :  he  is  still 
more  opposed  to  having  his  banker  changed  for  him, 
whether  he  will  or  not. 

It  is  not  sufficient  to  reply  that  the  change  does  not 
involve  the  change  of  one's  banker,  because  virtually  it 
amounts  to  that  It  is  not  to  the  Directors  and  Com- 
pany, but  to  the  Manager  personally,  that  the  customer 
unbosoms  himself,  and  seeks  for  friendly  counsel  as  to 
his  money  matters. 

Moreover,  it  is  undesirable  and  a  waste  of  power,  to 
remove  a  Manager  from  a  district  with  which  he  is 
familiar,  to  one  to  which  he  is  a  stranger ;  because  a 
knowledge  of  the  persons  with  whom  he  has  to  deal  is 
manifestly  one  of  the  most  important  acquisitions  which 
a  Bank  Manager  can  possess,  and  ought  not  lightly  to  be 
set  aside  and  sacrificed. 

Such  a  removal,  it  is  true,  may  at  times  be  unavoid- 
able. The  management  of  an  important  Branch  may 
become  vacant,  and  the  fittest  man  to  fill  the  vacancy 
may  be  the  Manager  of  a  Branch  in  a  distant  part  of  the 
country.  The  point  to  be  arrived  at  is — not  the  perpetual 
fixity  of  every  Manager  to  a  particular  Branch,  whatever 
may  come  to  pass  ;  but  the  greatest  possible  avoidance 
of  change. 

You  cannot  regulate  promotion  in  a  bank  by  any 
arbitrary  scheme  of  precedency  and  succession.  The 
services  required  from  the  officers  and  clerks  of  a  bank 
are  not  altogether  automatic.  These  men  arc  some- 
thing more  than  hewers  of  wood  and  drawers  of  water. 
They  are  not  a  mere  combination  of  wheels  and  move- 
ments in  a  complicated  machine,  bound  to  revolve 
blindly,  each  on  its  own  pivot,  without  thought  or  care  or 
responsibility.     A  certain  uniformity  is  no  doubt  indis- 


LKT.  XXII.]  Salaries,  167 

pensable  in  the  routine  work  of  a  bank,  but  banking  ia 
not  all  routine  ;  it  is  not  all  a  matter  of  red  tape.  It 
gives  scope  for  the  exercise  of  qualities,  ranging  from  those 
of  the  mere  drudge  to  abilities  of  the  highest  order.  Its 
salaries  therefore  must  be  measured  by  the  mental  capa- 
cities of  its  officers,  as  well  as  by  their  grades  of  seniority. 

Other  things  being  equal,  the  officer  of  senior  standing 
has  the  prior  claim  to  advancement :  but  if  other  things 
are  not  equal — if  he  has  allowed  a  junior  in  the  service 
to  outstrip  him  in  the  race  for  distinction,  it  is  but  just 
that  the  better  man,  although  the  younger,  should  take 
the  better  place. 

This  may  seem  hard  on  the  less  capable  amongst  the 
officers ;  but  any  other  course  would  be  still  harder  upon 
the  Bank.  It  is  bound  to  place  its  ablest  hands  where 
ability  is  wanted  ;  and  ability  does  not  always  ripen  with 
the  years. 

No  doubt,  among  the  rank  and  file  of  every  bank,  there 
are  those  who  deem  themselves  qualified  for  higher  things 
than  figuring,  or  the  casting  up  and  balancing  of  cash 
books  and  ledgers  :  but,  even  so,  it  is  clear  that  all  can- 
not be  Managers,  or  Secretaries,  or  Chief-accountants. 
Banking  may  have  its  mute  inglorious  Miltons ;  but 
this  is  certain,  that  Boards  of  Directors  have  no  object 
in  making  choice  of  their  higher  range  of  officials,  other 
than  the  selection  of  the  fittest.  This  being  so,  it  need 
no  more  be  a  reproach  to  a  subordinate  officer,  that  he 
has  not  the  special  capacities  required  for  high  office  in 
banking,  than  that  he  was  not  born  to  command  the 
Channel  Fleet  or  lead  the  House  of  Commons.  It  is  his 
misfortune,  if  misfortune  it  be  ;  but  one  has  heard  of  men 
in  the  foremost  ranks  of  banking,  looking  back  almost 
with  regret,  to  those  early  days,  when  their  salaries  were 
light  and  their  cares  in  proportion. 

There  are  those  in  the  service  of  every  bank  who  would 
no  doubt  prefer  the  system  of  promotion  by  seniority ; 
a  method  of  choice  which  recognises  but  one  standard 
of  intellectual  value — the  weight  of  years.  Weighed 
in  the  balances  of  time,  seniority  preponderates  as  a 


1 68  The  Country  Banker,  [let.  xxii. 

law,  and  judgment,  thought  and  aptitude,  if  linked  with 
youth,  inevitably  kick  the  beam.  It  would  be  a  welcome 
relief  to  your  Directors  and  Chief  Manager,  if  they  could 
adopt  this  system.  The  lengthened  and  earnest  consi- 
deration which  they  now  give  to  every  case,  as  it  arises, 
in  order  to  place  the  right  man  in  the  right  place,  and 
mete  out  justice  impartially  to  all,  would  be  spared 
them.  The  law  of  seniority  requires  no  thought  and  no 
supervision  ;  it  is  self-acting.  It  reduces  promotion  to 
a  question  not  of  merit,  but  of  mortality  amongst  the 
seniors.  It  robs  the  service  of  all  interest,  except  in 
dead  men's  shoes.  If  promotion  is  not  to  be  the  reward 
of  active  brains  and  willing  hands,  why  disquiet  them- 
selves in  vain }  and  why  ought  we,  the  lookers  on,  to  feel 
surprised  at  the  do-nothing  apathy,  and  the  official  inso- 
lence, which  are  too  often  the  outcome  of  the  system  ? 

A  bank  cannot  give  high  salaries  to  all  its  officers;  but 
if  its  highest  offices  are  open  to  every  one  in  its  employ- 
ment, who  shall  prove  his  fitness  for  the  same,  there  will 
be  no  apathy  in  its  staff.  It  will  be  the  object  of  every 
one  to  devote  his  best  abilities  to  the  practice  and  study 
of  his  profession ;  and  thus  an  able,  zealous  and  loyal 
staff  will  be  developed. 

But  although  a  bank  cannot  give  high  salaries  to  all, 
it  is  not  a  wise  policy  to  give  insufficient  salaries  to  any. 
A  bank  ought  not  to  appraise  the  value  of  an  officer's 
services  merely  by  what  they  would  fetch  in  the  clerk 
market.  He  may  not  be  a  man  of  capacity  ;  he  may  be 
even  little  more  than  an  honest  and  willing  drudge  ;  but 
when  it  is  considered  how  much  the  Directors  of  a  bank 
have  to  trust  to  the  honesty,  integrity  and  honour  of  its 
staff,  they  will  not  lightly  part  with  those  who  have 
proved  themselves,  by  long  service,  the  possessors  of  those 
essential  qualifications,  even  if  they  have  little  else  to 
recommend  them  to  consideration.  In  the  best  interests 
of  the  Bank,  its  Directors  will  rather  give  an  officer  they 
have  known  and  trusted  for  years  a  trifle  more  to  stay, 
than  a  stranger,  however  highly  commended,  a  trifle  less 
to  come. 


Lw.  XXII.]  Salaries,  169 

If  the  system  of  promotion  followed  by  your  Bank 
gives  rise  to  occasional  heartburnings,  such  feelings  are 
probably  the  monopoly  of  the  few,  who  cannot,  without 
envy  and  bitterness,  see  better  men  passed  over  their 
heads.  But  the  system  is  not  in  fault.  It  is  reasonable 
in  its  requirements  and  just  in  its  action.  It  has  no 
favourites,  except  that  it  favours  superior  talent,  energy 
and  desert.  It  holds  forth  the  inducement  to  all  alike 
to  press  forward,  and  impartially  assigns  its  prizes  to 
the  winners  in  the  race. 

There  are  grumblers  to  be  found  in  every  staff.  There 
would  be  such  even  if  a  second  Daniel  came  to  judgment. 
There  are  some  in  every  bank  possessed  with  a  conceit 
of  themselves  which  no  salary  will  ever  rise  to  the 
height  of. 

Your  teller  Mr.  Coigne  is  not  exactly  one  of  these, 
but  he  looks  upon  his  services  as  grievously  underpaid. 
He  gives  his  mind  over  rather  to  speculation  than  to 
practice,  and  could  pass  a  searching  examination  on  the 
abstrusest  theories  of  the  currency ;  on  which  he  delights 
to  cross  an  occasional  sword  with  a  certain  H.  B.  in  the 
columns  of  your  local  paper,  to  the  bewilderment  of  its 
readers,  if  not  to  the  surrender  of  his  antagonist.  Mr. 
Coigne  has  all  the  qualities  requisite  in  a  good  subaltern, 
but  is  deficient  in  those  which  are  essential  for  command  : 
Wherefore,  he  is  still  only  a  Branch  Cashier,  although  he 
has  applied  for  the  management  of  every  Branch  which 
has  become  vacant  during  the  last  ten  years. 

Your  Accountant  has  likewise  a  grievance.  He  has 
applied  annually  for  an  increase  in  his  salary  for  some 
time  past,  on  the  ground  that  he  has  married  a  wife  and 
has  a  young  and  increasing  family :  but  if  a  man 
persists  in  marrying  on  a  salary  only  suflficient  to 
maintain  himself  in  comfort,  that  is  his  own  affair.  The 
Directors  cannot  make  every  increase  in  a  man's  family 
the  occasion  of  an  addition  to  his  salary. 

You  have  a  slight  grievance  yourself.  You  have  less 
salary  than  your  predecessor  had,  and  you  have  heavier 
work  to  do,  and  you  have  to  carry  some  of  his  burdens 


170  The  Country  Banker,  [let.  xxii. 

as  well.  But  Mr.  Littleworth  was  one  of  the  oldest 
officers  in  the  service,  and  numbered  twice  your  years. 
If  you  look  at  the  salary  he  received,  when  he  was  of 
your  age,  you  will  probably  find  that  your  present 
stipend  is  munificent  by  comparison. 

There  are  those  who  persistently  remind  the  Directors 
of  their  services  and  aspirations,  whenever  the  time 
comes  round  for  the  revision  of  salaries.  Whether  this 
course  has  the  effect  of  furthering  their  wishes,  is,  to  say 
the  least,  doubtful.  The  officer  who  is  content  to  leave 
the  question  of  his  salary  to  the  judgment  and  justice 
of  the  Directors,  and  abstains  from  worrying  them  about 
it,  is  not  likely  to  suffer  by  reason  of  his  abstention. 
The  merits  of  every  individual  in  the  service  are  per- 
fectly known  to  the  authorities  at  head  quarters  ;  and 
an  officer  will  not  enhance  the  value  of  his  services  by 
the  continual  blowing  of  his  own  trumpet 


LETTER    XXIII. 

OFFICE    EXPENSES. 

In  expenses  I  would  be  neither  pinching  nor  prodigal ;  yety  if 
my  means  allow  it  not,  I  would  rather  be  thought  too  sparing 
than  a  little  profuse.  Feltham. 

The  great  item  of  your  expenditure  will  consist  of 
the  interest  paid  half-yearly  on  your  deposits  and  credit 
balances. 

Next  in  amount  come  salaries,  with  which  we  have 
just  dealt ;  then  sundry  less  important  items,  which 
have  nevertheless  to  be  glanced  at  as  we  pass  on.  And 
first  as  regards  the  item  of 

Premises.  Your  premises  in  Oxborough,  you  state, 
are  of  moderate  rent,  but  they  are  old  and  mean-looking, 
and  rather  out  of  sight :  whereas  the  premises  of  your 
competitors  are  the  architectural  glory  of  Oxborough, 
and  the  admiration  of  the  county.  They  occupy  an 
imposing  site  on  the  South  side  of  Market  Square,  and 
are  conspicuous  from  every  point  of  it:  whereas  you 
command  that  important  centre  only  by  the  word 
Bank  in  colossal  capitals,  on  a  dead  wall ;  and  your 
front  door  is  round  a  corner. 

You  believe  that  Messrs.  Yewtrey  &  Co.  sit  at  a  rent 
some  five  times  greater  than  your  own ;  but  you  are 
doubtful  whether  the  impression  made  upon  the  public 
mind  by  their  superb  building  may  not  compensate  for 
this,  by  attracting  business  to  them,  of  which  you  would 
have  an  equal  chance,  if  you  were  housed  with  equal 
splendour. 


1 72  The  Country  Banker.  [let.  xxm. 

No  doubt,  there  are  those  who  judge  of  a  bank  to  a 
certain  extent  by  its  externals.  A  large  and  costly  build- 
ing is  an  assurance  to  some  minds  of  corresponding  wealth 
and  stability  within.  A  massive  structure,  bristling  at  all 
points  with  arrangements  in  iron,  crowned  with  javelin 
tops,  for  the  impalement  as  it  might  seem  of  would- 
be  burglars,  will  appear  to  many  persons  a  more  secure 
place  to  deposit  money,  than  a  building  like  yours  of 
humbler  pretensions ;  which  was  somebody  else's  shop 
and  dwelling-house  in  the  last  generation,  and  would 
seem  designed  rather  to  invite  burglarious  attack  than 
to  defy  it. 

There  are  those  again,  who  experience  a  sense  of 
reflected  dignity,  as  they  pass  under  the  Grecian  portico 
of  your  rivals,  with  the  eyes  of  Market  Square  upon 
them.  This  is  the  style  of  thing,  they  seem  to  say, 
that  corresponds  with  our  business  position,  and  com- 
mends itself  to  our  approval. 

On  the  other  hand,  in  a  small  town  where  everyone 
knows  what  everybody  else  is  doing,  it  is  certain  that 
many  persons  would  rather  their  banking  were  trans- 
acted with  a  greater  regard  to  privacy,  and  less  in  the 
glare  and  focus  of  the  public  eye. 

A  man  visits  his  bankers  ordinarily  to  do  one  of  two 
things.  He  goes  either  to  borrow  or  to  deposit  money. 
If  to  borrow,  he  would  rather  the  eyes  of  Market  Square 
were  not  upon  him.  The  nature  of  his  errand,  it  is  true, 
is  not  written  across  his  back ;  but  he  will  have  an 
uneasy  feeling  that  its  object  will  be  shrewdly  guessed 
at  by  observant  neighbours.  On  the  whole,  he  will 
prefer  to  turn  your  corner  quietly  and  do  his  borrowing 
with  you.  If  his  business,  on  the  other  hand,  is  to 
deposit  money,  he  may  desire  to  be  equally  circumspect 
He  does  not  wish  it  to  be  popularly  known  that  he  has 
money  in  the  Bank  ;  because  this  may  expose  him  to 
solicitations  for  loans  by  needy  neighbours,  and  deprive 
him  of  the  unanswerable  excuse  that  he  has  not  the 
money  to  lend.  Mr.  Nayler  was  never  known  to  lodge 
money  to  his  credit  when  anyone  was  looking  on. 


LET.  XXIII.]  Office  Expenses,  1 73 

It  is  at  least  open  to  question,  therefore,  whether  your 
premises  are  not  as  desirable,  in  point  of  situation,  as 
those  of  the  old  bank.  A  site  such  as  yours,  which  is  at 
once  public  and  private,  central  and  yet  retired,  will  com- 
mend itself  to  at  least  as  many  people  as  it  will  repel. 

It  may  be  that  your  constituents  in  Oxborough  shall 
so  increase  and  multiply,  as  to  oblige  your  Directors 
to  construct  a  building  of  their  own,  some  day,  which 
shall  rival  even  the  structure  of  Messrs.  Yewtrey  &  Co. 
in  commodious  arrangement  and  architectural  magnifi- 
cence. In  the  meantime,  you  can  well  rest  content  with 
your  present  housing,  and  keep  your  expenses  down. 
A  large  building  will  involve  a  serious  increase  in  rent, 
rates  and  taxes,  and  in  various  other  ways.  '  A  house,' 
observes  Fuller,  *  had  better  be  too  small  for  a  day,  than 
too  large  for  a  year.* 


Incidental  Expenses.  It  would  be  well  to  accustom 
yourself  to  reflect,  that  the  example  of  any  one  Branch, 
in  the  direction  of  increased  expenditure,  is  apt  to 
spread.  If  you  are  inclined  to  be  lavish,  you  have  no 
right  to  assume  that  your  nine  and  twenty  fellow- 
Managers  are  models  of  thrift.  If  Oxborough  shall 
spend  money,  let  us  say,  in  replacing  the  shabby  old 
office  clock,  by  a  new  and  gorgeous  instrument,  the 
other  Branches  may  be  stirred  more  or  less  by  a  desire 
to  follow  suit  There  will  be  a  perceptible  touch  of 
clock  fever  throughout  the  establishment.  When  you 
experience  an  inclination,  therefore,  to  add  to  the 
existing  expenses  of  your  Branch,  whatever  form  the 
inclination  may  take,  multiply  the  cost  of  the  proposed 
addition  by  30;  because  what  may  be  deemed  a 
proper  outlay  at  your  Branch,  may  be  looked  upon 
as  a  thing  equally  to  be  desired  at  all  your  other 
Branches. 

And  whilst  you  thus  keep  in  subjection  any  leanings 
of  your  own  towards  an  increased  expenditure,  there  is 
a  tendency  to  waste  in  small  things,  in  the  daily  work- 


1 74  The  Country  Banker,  [let.  xxm. 

ing  of  a  bank,  which  you  will  do  well  to  check,  if  you 
find  that  it  exists  at  Oxborough  Branch. 

It  is  related  of  a  youth  in  the  staff  of  a  certain  bank 
that  when  he  travels  in  its  service,  he  does  so  *  like  a 
gentleman,'  has  tawny  port  with  dinner  every  day,  and 
rewards  the  attendants  with  princely  munificence;  all 
which,  he  will  placidly  assure  you,  he  does  for  the  credit 
of  the  Bank  as  its  representative.  His  taste  in  pens  is 
said  to  be  so  fastidious,  that  in  finding  one  to  suit  him, 
he  throws  two  others  away.  In  the  intervals  of  business, 
he  carries  on  a  large  private  correspondence,  making 
free  use  of  paper,  envelopes,  and  sealing-wax,  not  his 
own ;  but  what  Board  of  Directors,  as  he  demands 
with  scorn,  would  condescend  to  notice  such  trifles,  or 
chronicle  such  small  beer }  We  shall  have  the  inspector 
counting  the  dusters  next,  proceeds  this  malapert,  and 
putting  our  charwoman  on  a  reduced  allowance  for  soap. 

This  young  man  flatters  himself  that  amongst  other 
accomplishments  he  has  a  pretty  turn  for  satire.  When 
the  Directors  made  the  last  disappointing  advance  in 
his  salary,  he  thanked  them  with  such  polite  mockery 
and  elaborate  sarcasm,  that  he  had  well-nigh  forfeited 
both  salary  and  situation. 

I  do  not  introduce  this  youth  to  your  notice  as  a  re- 
presentative bank  clerk.  On  the  contrary,  it  is  to  be 
hoped  that  in  his  all  round  capacity  for  waste  in  little 
things,  he  is  without  a  rival.  But  if  others  have  not 
his  many-sidedness,  they  sometimes  have  tendencies 
of  their  own  towards  waste,  which  you  may  have  to 
check.  A  reckless  consumption  of  coal  and  gas,  for 
example,  is  a  conspicuous  and  somewhat  dangerous  form 
of  extravagance.  I  have  heard  an  experienced  bank 
Inspector  declare  his  wonder,  in  a  sardonic  way  which  he 
had,  that  there  are  not  as  many  bank  offices  set  on  fire 
every  year  in  England,  as  there  were  huts  in  China, 
whenever,  according  to  Elia,  a  certain  process  in  primeval 
cookery  was  resorted  to  by  the  natives. 

It  is  not  necessary  that  you  should  push  economy  to 
the  verge  of  meanness  :  there  is  a  degree  of  parsimony 


LET.  xxm.]  Office  Expenses.  175 

which  defeats  itself.  What  you  have  to  fight  against,  if 
you  find  it  to  exist,  is  thoughtless  waste,  not  reasonable 
consumption.  If  you  would  not  have  the  office  ink 
smearing  your  walls,  desks,  and  floor  with  indelible 
arrangements  in  black,  neither  would  you  measure  it  out 
by  the  gill.  You  would  not  stint  the  office  to  so  many 
sticks  of  sealing-wax  a  week,  but  you  might  interdict  a 
wasteful  apprentice  from  sealing  the  day's  letters  in  discs 
of  wax,  sufficient  to  take  off  the  Great  Seal  itself. 

Acts  of  unthrift  like  these  flow  less  from  want  of 
principle,  than  from  want  of  supervision.  *  They  care 
not  what  they  spend,'  says  Fuller,  *  who  are  never 
brought  to  an  audit.' 

Waste  in  small  things,  where  it  prevails  and  is  left  to 
itself,  is  continuous,  and  may  be  reckoned  by  the  hour. 
Now  there  are  six  hours  in  your  working  day,  and  some 
three  hundred  days  in  your  working  year,  and  you  num- 
ber one  hundred  and  fifty  officers  and  clerks  all  told. 

These  figures — 6  x  300  X  150  yield  a  formidable  total. 
They  indicate  270,000  opportunities  for  unthrift,  of 
one  hour  each,  in  the  course  of  a  year.  Even  farthings, 
with  such  a  multiplier,  would  come  to  something. 
But  whatever  the  amount  may  be,  it  will  be  well  to 
note  that  it  has  to  be  charged  to  the  fund  out  of  which 
salaries  are  paid.  The  Executive  of  a  bank,  therefore, 
from  the  Manager  to  the  youngest  apprentice,  have  a 
direct  personal  interest  in  keeping  expenses  down. 


Subscriptions  and  Charities.  You  are  dunned 
once  a  year  for  a  subscription  by  the  Bank  to  Ox- 
borough  Races.  There  are  many  of  your  best  clients 
on  the  Race  Committee,  and  you  are  doubtful  whether 
the  persistent  refusal  of  your  Directors  to  subscribe  is 
sound  policy. 

Their  difficulty  is  no  doubt  this.  Amongst  a  proprie- 
tary so  mixed  as  that  of  a  joint  stock  bank,  there  may 
be  those  who  entertain  the  strongest  objections  to  horse- 
racing,  on  religious  grounds.     It   matters   not  whether 


1 76  The  Country  Banker.  [let.  xxm, 

horse-racing,  morally  speaking,  be  good,bad  or  indifferent: 
it  is  enough  that  objections  to  it  exist  among  your  share- 
holders, to  render  inexpedient  any  application  of  the 
Bank's  funds  to  its  support. 

The  same  difficulty  stands  in  the  way  of  the  Bank 
subscribing  to  any  object,  concerning  the  merits  of  which 
your  proprietors  may  be  divided  in  opinion,  on  political 
or  religious  grounds.  You  cannot  subscribe  to  the  erec- 
tion of  a  church,  and  refuse  to  contribute  to  the  building 
of  a  chapel.  You  cannot  support  Church  of  England 
Schools,  and  turn  your  backs  upon  all  others.  Not  to 
speak  it  profanely,  a  Joint  Stock  Bank  is  virtually  of  no 
religion.  It  looks  with  the  balanced  eye  of  business 
upon  Christians  and  Jews,  Infidels  and  Heretics,  with 
impartial  recognition. 

But  as  regards  dispensaries,  hospitals,  asylums,  and 
other  institutions,  to  which  all  creeds  and  parties  may 
contribute  on  the  broad  basis  of  common  charity,  your 
Bank  will  no  doubt  be  ready  at  all  times  with  its  proper 
share. 

In  estimating,  however,  what  this  should  be,  you  havf 
to  take  into  account  that  your  shareholders  in  Oxborough 
may  have  already  subscribed  individually  towards  the 
object  in  view.  Not  that  this  circumstance  will  absolve 
the  Bank  from  giving,  in  its  capacity  as  a  householder,  as 
well ;  but  it  may  serve  to  modify  the  views  of  those  who 
appear  to  think  that  a  bank  has  a  limitless  power  of 
giving,  and  the  unrestricted  run  of  its  shareholders* 
pockets. 

Your  Directors,  nevertheless,  will  not  regulate  the  cha- 
rities of  the  Bank,  by  calculating  how  little,  but  rather  how 
much  they  can  rightly  give  to  all  good  works;  because 
they  know  that  money  thus  given,  is  not  always  money 
wasted.  Such  giving  is  not  always  a  sterile  form  of  in- 
vestment, even  from  a  business  point  of  view. 

It  troubles  you  that  your  subscription  to  the  funds  of 
your  Infirmary  is  only  two  guineas  a  year,  whilst  Messrs. 
Yewtrey  &  Co.  give  ten.  The  fact,  you  observe,  gives 
occasion  to  certain  people  for  contemptuous  remark  and 


LET.  xxiii.j  Ojffice  Expenses.  1 77 

injurious  comparison.  But  such  persons  must  either 
forget  or  ignore  the  fact  that  Messrs.  Yewtrey  &  Co. 
have  no  Branches.  Their  sole  office  is  at  Oxborough ; 
whereas  your  Bank  has  to  contribute  at  thirty  different 
points.  You  subscribe  to  thirty  Infirmaries,  therefore, 
as  against  their  one ;  and  contribute  sixty  guineas  a 
year  to  their  tea 


LETTER   XXIV. 

ROUTINE    DUTIES. 

The  every-day  cares  and  duiUsy  which  men  call  drudgery^  are 
the  weights  and  counterpoises  of  the  clock  of  time^  giving  its  pen- 
dulum a  true  vibration  and  its  hands  a  regular  motion. 

Longfellow. 

You  take  exception  to  certain  of  your  routine  duties 
as  you  find  them  set  forth  in  your  code  of  instructions. 


Attendance.  If  your  printed  regulations  are  to 
be  strictly  observed,  in  the  matter  of  attendance,  for 
example,  you  submit  that  they  would  tie  you  to  your 
counter  from  day  to  day,  without  respite,  from  one  year's 
end  to  another,  except  during  your  annual  holidays. 
But  if  there  is  a  grievance  in  this,  it  is  a  penalty  which 
you  pay  to  your  profession.  It  is  a  regulation  common 
to  every  Bank.  In  banking,  more  than  in  any  other 
business,  the  customer  elects  to  deal  with  the  principal. 
However  qualified  your  second  in  command  may  be  to 
represent  you,  he  is  not  the  Manager,  and  will  not  be 
accepted  by  the  customers  as  your  second  self  or  human 
equivalent.  If  it  be  the  first  necessity  of  banking  that 
your  office  doors  should  be  open  during  the  usual  hours 
of  business,  the  second  is  that  you  should  be  inside  of 
them.  If  your  clients  find  that  there  is  an  uncertainty 
as  to  this,  and  that  transactions  of  vital  moment  to 
them  have  every  now  and  then  to  be  submitted  to  a 
subordinate,  or  delayed  a  post,  in  order  that  you  may 
have  a  day's  fishing,  or  a  day's  shooting,  or  a  day's  some- 


LET.  xxiv.j  Routine  Dutus,  179 

thing  else,  they  will  consider  themselves  ill-used  and 
begin  to  calculate  how  long  they  will  put  up  with  it.  A 
medical  man  of  sporting  habits,  who  should  leave  his 
patients  every  now  and  then  to  the  care  of  his  surgery 
assistant,  would  soon  experience  a  sensible  falling  off  in 
the  demands  upon  his  skill. 

Neither  is  this  matter  of  relaxation  an  obvious  neces- 
sity. Mr.  Coigne,  it  is  true,  exclaims  against  'the 
thraldom  of  the  desk,'  and  protests  that  in  all  Ox- 
borough,  there  is  not  a  journeyman  shoemaker,  nor  a 
draper's  apprentice,  so  tied  by  the  heels  to  his  work, 
day  after  day,  and  every  day,  as  the  officials  in  banks 
are.  But  if  Mr.  Coigne's  work  is  continuous,  it  is  of  the 
briefest  in  point  of  duration.  The  inscription  on  the 
brass  plate  of  your  office  door  is, — *  Open  from  10  till  3  ; ' 
and  even  out  of  this  brief  period  of  service,  Mr.  Coigne 
takes  little  less  than  an  hour  for  his  mid-day  meal.  His 
daily  work,  therefore,  cannot  be  put  at  much  more  than 
five  hours  out  of  the  four  and  twenty ;  whereas  the  work- 
ing hours  of  those  whose  happier  lot  he  appears  to  covet 
are  nearer  ten  than  five.  Their  work  absorbs  twenty 
weeks  out  of  the  fifty-two — his  only  ten.  His  workaday 
life  therefore,  his  daily  labour  under  the  sun,  compared 
with  theirs,  is  a  perpetual  half-holiday. 

You  suggest  whether  it  might  not  be  expedient,  on 
the  occasion  of  fairs  and  markets,  that  you  should  go 
about  amongst  your  country  clients,  were  it  merely  to 
shake  hands  and  have  a  talk  about  the  weather  and  the 
crops.  You  believe  that  in  this  way  you  might  pick  up 
a  useful  hint  here  and  there,  as  to  how  some  of  your 
agricultural  friends,  particularly  those  on  the  debit  side 
of  your  ledgers,  were  getting  on.  But  to  discuss  the 
position  and  prospects  of  people  in  the  publicity  of  a 
market  place,  even  in  whispers,  is  clearly  undesirable. 
These  subjects  of  inquiry  ought  never  to  be  attempted 
except  in  the  privacy  of  your  own  office ;  whilst  the 
weather  and  the  crops  might  be  sufficiently  gone  into  at 
any  time  across  your  counter. 

The  business  of  a  banker  does  not  lead  him  to  the 

M  a 


i8o  The  Country  Banker.  [let.  xxiv 

public,  but  the  public  to  him.  He  does  not  cross  the 
street  to  Brown  to  beseech  him  for  a  deposit,  nor  to 
Jones  to  implore  him  to  overdraw  his  account.  As  we 
sought  in  a  former  letter  to  render  manifest,  it  is  for  its 
customers  to  come  to  a  bank,  and  not  for  the  bank  to 
go  to  them  ;  for  the  simple  reason  that  banking  would 
otherwise  be  impossible  and  come  to  an  end.  But  this 
being  so,  the  community  have  a  right  to  demand  that  the 
Bank  shall  at  all  times  be  in  complete  working  order ; 
and  to  insure  this,  the  Manager  has  to  be  as  much  a 
fixture  in  the  office,  during  the  business  hours  of  every 
business  day,  as  the  office  desks  or  the  bank  counter. 

You  ask,  if  you  are  thus  to  pass  the  remainder  of  your 
days  inside  your  office,  how  you  are  to  push  the  business  ? 
But  banking  is  a  business  to  which  the  process  of 
pushing  must  be  applied,  if  at  all,  with  the  utmost 
circumspection. 

To  entice  the  customer  of  another  bank,  for  example, 
to  bring  his  account  to  you,  would  be,  to  say  the  least, 
an  unneighbourly  act ;  but  what  is  worse,  it  would  be  a 
blunder :  because,  for  one  reason,  the  other  bank  could 
play  at  the  same  game.  It  would  be  pawn  for  pawn, 
and  piece  for  piece,  and  at  the  best  a  drawn  battle, 
which  would  leave  mutual  and  angry  wounds  behind  it. 
The  advice  to  those  who  live  in  glass  houses  to  beware 
of  throwing  stones  has  many  applications. 

But  there  is  a  further  objection.  If,  at  your  personal 
solicitation,  a  man  brings  his  account  to  you  from 
another  bank,  he  will  naturally  expect  not  only  the 
same  facilities  from  you  which  he  has  just  surrendered, 
but  something  in  addition,  by  way  of  consideration  for 
his  having  made  the  change  ;  and  it  will  be  ungracious 
to  refuse  him,  however  much  his  expectations  may 
exceed  your  own  idea  of  the  fitness  of  things  in  his  case. 

Those  of  your  customers  whose  good  will  you  have 
won,  backed  by  your  detachment  of  local  shareholders, 
constitute  an  auxiliary  force,  which  will  bring  fresh 
business  to  the  Bank,  when  there  is  fresh  business  to 
bring,  without  your  moving  in  the  matter,  or  getting 


L«T.  XXIV.)  Routine  Duties,  l8l 

yourself  into  unpleasant   relations  with    neighbouring 
banks. 

So  far  from  frequenting  fairs  and  markets,  let  no  one 
entice  you  to  talk  about  or  transact  business  outside  the 
Bank.  When  you  lock  your  cash  up  at  the  close  of  the 
day's  business,  lock  the  doors  of  your  mind  upon  office 
matters  at  the  same  time,  and  let  them  continue  locked 
until  the  next  day.  Do  not  let  a  few  troublesome  accounts 
even,  if  you  have  any,  accompany  you  to  your  pillow  and 
trouble  you  in  the  night  season.  You  will  not  render 
them  less  troublesome  by  losing  your  night's  rest  over 
them.  '  Put  off  thy  care  with  thy  clothes,'  says  Quarles, 
'  so  shall  thy  rest  strengthen  thy  labour :  and  so  shall 
thy  labour  sweeten  thy  rest.' 


Private  Conduct.  The  espionage  upon  the  private 
conduct  of  their  officials,  throughout  the  establish- 
ment, which  your  Directors  countenance  and  encourage, 
is  gall  and  wormwood  to  certain  of  your  staff,  and 
appears  to  be  regarded  with  some  disfavour  even  by 
yourself:  not  that  you  fear  the  closest  watching, 
you  remark,  but  because  it  is  humiliating  to  be 
suspected. 

But  is  not  this  putting  too  fine  a  point  upon  it? 
Watchfulness  is  not  synonymous  with  suspicion.  When, 
for  example,  a  stranger  presents  for  payment  a  letter  of 
credit  in  his  favour,  and  you  require  a  reference  as  to  his 
identity,  you  do  not  thereby  entitle  him  to  assume  that 
you  look  upon  him  as  an  impostor  ?  You  make  the 
requisition  purely  as  a  matter  of  business.  Or  when 
your  Inspector  of  Branches  comes  round  and  counts  your 
cash,  to  see  that  it  tallies  with  your  books,  he  does  not 
thereby  impute  that  he  suspects  your  honesty.  He  does 
not  count  it  with  the  slightest  suspicion  that  he  will  find 
it  deficient.  He  checks  it  purely  as  a  matter  of  routine. 
To  watch  is  not  necessarily  to  suspect :  it  is  simply  to 
keep  one's  ears  and  eyes  open.  You  would  not  have 
your  Directors  to  seal  both  these  organs  up,  or  your 


1 82  The  Country  Banker,  [let.  xxiv. 

Inspector  to  make  his  rounds  blindfolded  ?  There  are 
limits,  well  defined,  within  which  even  the  inquiring  gaze 
of  your  Inspector  may  not  penetrate  ;  but  beyond  these, 
the  conduct  of  every  officer  in  a  bank  is  justly  open  to 
the  surveillance  of  its  Directors. 

With  your  private  convictions  in  religion  or  politics 
you  will  have  no  interference,  provided  you  keep  them 
in  reasonable  measure  to  yourself.  The  Directors  will 
not  require  to  know  what  communion  of  Christians  you 
belong  to,  nor  to  which  party  you  give  your  vote  at 
elections.  But  it  is  one  thing  to  entertain  an  opinion, 
and  quite  another  to  seek  its  propagation.  When  a 
Bank  Manager  therefore  becomes  either  a  prominent 
political  partisan,  or  a  pronounced  religious  zealot,  his 
Directors  have  the  right  to  admonish  him,  that  such 
outbreaks  of  zeal  are  incompatible  with  his  duties  to  the 
Bank,  and  are  not  included  in  the  services  for  which  they 
pay  him  a  salary. 

Banking,  as  we  have  said  more  than  once,  does  not 
lean  to  any  sect  in  religion,  nor  incline  to  any  side  in 
politics.  It  deals  alike  with  all  sorts  and  conditions  of 
men.  Identify  yourself,  therefore,  conspicuously  with 
any  sect  or  party,  and  succeed  in  setting  half  Ox- 
borough,  every  now  and  then  by  the  ears,  and  de- 
fections from  the  number  of  your  constituents  will 
assuredly  follow. 

His  Directors  have  no  concern  with  a  Manager's 
tastes,  habits,  or  pursuits,  so  long  as  they  do  not 
interfere  with  the  efficient  discharge  of  his  duties  ;  but 
should  he  overstep  the  lines  of  prudence  or  propriety, 
they  are  bound  to  interfere.  If  his  style  of  living,  for 
example,  becomes  extravagant,  and  obviously  in  excess 
of  his  income,  the  Directors  are  bound  to  call  him  to 
account ;  because  he  cannot  live  beyond  his  means  for 
long  without  one  of  two  things  happening :  either  he 
will  meet  the  growing  deficit  in  his  finances  with 
borrowings  from  the  cash — no  doubt  with  a  confident 
trust  in  his  ability  to  make  all  square  again  in  time  ;  or 
he  will  run  into  debt  with  customers  of  the  Bank,  and 


LET.  XXIV.]  Routine  Duties,  183 

thus  bring  undeserved  odium  upon  it,  when  the  inevit- 
able crash  comes. 


Instructions  from  Head  Office.  The  feelings 
of  your  staff  are  frequently  outraged,  it  would  seem,  by 
the  circulars  sent  from  time  to  time  by  the  Head  Office 
to  its  Branches  on  matters  touching  the  business  and 
regulations  of  the  Bank. 

It  may  seem  unjust  to  the  executive  of  your  Branch 
to  be  severely  cautioned  against  the  repetition  of  irre- 
gularities which  they  have  never  been  guilty  of.  But 
the  circular  is  an  impersonal  missive.  The  irregulari- 
ties to  which  it  refers  have  arisen  at  one  or  other  of 
the  Branches,  and  the  caution  is  for  those  whom  it  may 
concern.  But  it  will  not  be  wise  in  the  members  of  your 
staff  to  treat  every  circular  from  head-quarters  as 
designed  for  the  edification  of  somebody  else.  It  may 
be  taken  for  granted  that  the  parent  establishment  will 
not  issue  a  single  order  that  is  superfluous.  Your 
subordinates  at  Oxborough  will  best  study  their  own 
interest,  therefore,  by  a  prompt  compliance  with  such 
instructions  as  may  reach  the  Branch  from  Head 
Office. 

A  bank,  in  the  working  of  its  routine,  partakes  in  a 
great  measure  of  the  movements  of  a  complicated  piece 
of  mechanism ;  and  the  Manager  or  clerk  who  shall 
cause  a  hitch  at  any  point,  by  disobedience  or  neglect; 
may  throw  the  whole  machinery  out  of  gear.  To  have 
the  great  semi-annual  balance  of  the  Bank,  for  instance, 
held  in  suspense,  even  for  a  day,  by  the  default  or 
stupidity  of  a  single  officer,  which  is  a  possible  thing, 
need  well  be  a  serious  matter  for  the  delinquent. 

The  routine  of  a  bank,  to  a  large  extent,  is  automatic, 
and  is  usually  framed  on  the  simplest  and  most  direct 
methods  of  doing  those  things  which  have  to  be  done 
swiftly  and  effectually.  In  office  work,  you  prefer  to 
reach  an  object  by  the  line  of  its  diameter,  rather  than 
by  that  of  its  circumference.     Here  and  there,  no  doubt, 


184  The  Country  Banker,  [let.  xxiv. 

a  bank  may  still  be  found  with  leanings  to  old  ways — to 
methods  of  reckoning  and  account  which  would  seem 
to  add  needlessly  to  human  labour.  If  the  man  is  a 
benefactor  to  his  species,  who  causes  a  blade  of  grass 
to  grow  where  one  never  grew  before,  the  man  who 
renders  even  one  book  entry  out  of  ten  to  be  for  ever 
needless,  deserves  the  lasting  gratitude  of  the  brother- 
hood of  banking.  Superfluity  of  record  and  excess  of 
books  and  book-entry  only  puzzle  the  brain,  lengthen  the 
hours  of  office  work,  and  multiply  the  chances  of  error. 


Managerial  Responsibility.  You  take  exception 
to  certain  articles  in  your  code  of  instructions,  the  dis- 
regard of  which  exposes  you  to  personal  responsibility. 

*  If  we  let  a  customer  overdraw  his  account  without 
authority,'  you  write,  'we  are  responsible.  If  we 
discount  bills  beyond  a  certain  amount  without  leave, 
we  are  responsible.  If  we  cash  a  cheque  upon  another 
Branch  or  bank,  and  it  is  dishonoured  and  becomes  a 
loss,  the  loss  is  ours.  If  we  discount  a  forged  bill,  or 
cash  a  forged  cheque,  and  become  the  victims  of  the 
fraud,  we  have  to  make  good  the  loss.' 

You  hold  it  to  be  unjust  and  impolitic,  thus  to  tie  a 
Manager  neck  and  heels  with  the  cords  of  responsibility, 
and  that  much  of  all  this  might  with  advantage  be  left 
to  his  discretion.  But  to  give  a  Bank  Manager  or 
anyone  else  a  discretion  to  follow  certain  rules,  or 
to  set  them  aside,  would  virtually  be  to  cancel  the  rules 
themselves. 

When  you  cash  a  cheque  drawn  upon  another  bank 
or  Branch,  in  ignorance  of  the  state  of  the  account  drawn 
upon,  and  the  cheque  is  dishonoured,  the  risk  is  self- 
taken,  and  the  loss  ought  to  be  self-borne.  That  you 
should  be  held  responsible  for  the  cashing  of  forged 
bills,  or  cheques,  is  only  consistent  with  all  usage.  It 
is  one  of  the  special  functions  of  a  Bank  Manager,  or  his 
cashier,  to  see  that  every  cheque  or  document,  against 
which  he  parts  with  the  funds  of  the  Bank,  bears  the 


LET.  XXIV.]  Routine  Duties.  1 85 

genuine  signature  of  the  party  entitled  to  the  money,  or 
that  of  his  duly  accredited  agent.  In  all  conditions 
of  life,  he  who  pays  money  to  the  wrong  person  has  to 
bear  the  loss  ;  just  as  it  is  the  common  lot  that  he  who 
burns  his  fingers  has  to  bear  the  smart. 

But  Boards  of  Directors  are  not  all  of  flint  and  adamant 
compounded.  Forgeries  which  would  have  imposed 
upon  any  one ;  errors  in  the  cash  on  busy  days ;  transac- 
tions undertaken  in  the  interest  of  the  Bank,  under 
circumstances  calculated  to  deceive  even  the  wariest ; — 
lapses  like  these  from  the  written  law  of  your  instruc- 
tions, if  not  entirely  condoned,  will  at  least  be  leniently 
dealt  with.  It  is  the  violation  of  the  code,  in  clearly 
specified  cases,  either  from  carelessness  or  conceit,  which 
will  be  visited  by  the  Board  with  their  worst  displeasure. 

In  respect  of  the  limitations  put  upon  your  action  in 
the  matter  of  advances  and  discounts,  you  hold  that  they 
leave  little  or  nothing  to  the  discretion  of  a  Manager, 
and  reduce  him  to  an  automaton.  You  desire  to  be 
more  of  a  man  and  less  of  a  contrivance. 

But  in  a  large  establishment  like  yours,  there  are 
Managers  and  Managers.  There  are  those  with  discre- 
tion largely  developed ;  but  there  are  others  in  which 
that  quality  is  not  so  conspicuous.  Based  on  the  axiom 
that  the  strength  of  a  chain  is  its  weakest  link,  the 
regulations  of  a  bank  are  necessarily  adapted  to  the 
capacities  of  its  least  capable  functionaries. 


LETTER    XXV. 

CORRESPONDENCE. 

WJien  thou  communicaUst  thyself  with  Utters^  heighten  or 
depress  thy  stile  according  to  the  quality  of  the  party  and  business: 
that  which  thy  tongue  would  present  to  any,  if  present,  let  thy  pen 
present  to  him  absent :  the  tongue  is  the  minds  interpreter  and 
the  pen  is  the  tonguis  secretary.  Quarles. 

Your  principal  correspondent  will  be  the  chief  Mana- 
ger of  the  Bank.  You  may  have  to  write  to  him  several 
times  a  week  on  various  matters,'  and  it  will  be  well  to 
bear  in  mind  that  the  nine  and  twenty  Managers 
at  your  other  Branches  have  to  do  the  same.  In  deal- 
ing with  this  extensive  correspondence  and  its  mis- 
cellany of  contents,  he  has  to  take  counsel  with  *  the 
Board.'  Every  letter  addressed  to  him  has  more  or  less 
to  engage  the  attention  and  exercise  the  judgment  of  a 
body  of  gentlemen,  to  whom,  for  the  most  part,  time  is 
money,  and  by  whom  it  is  appraised,  not  by  the  hour, 
but  by  the  minute.  When  you  write  to  your  Manager 
in  chief,  therefore,  you  are  addressing  your  six  Directors 
as  well. 

Your  virtual  correspondent,  then,  being  a  species  of 
modified  Briaraeus,  with  seven  heads  and  twice  that 
number  of  ears,  it  is  unnecessary  to  suggest  that  your 
communications  to  this  formidable  being  had  best  be 
featured  by  lucid  statement  and  legible  penmanship. 
The  clearest  statement  becomes  blurred  to  the  mind  of 
the  reader,  if  it  is  conveyed  in  a  hand-writing  so  obscure 
as  to  require  an  effort  and  strain  of  the  mental  powers 
to  worm  the  meaning  out  of  it.  If  the  Manager  who 
gives  way  to  an  inscrutable  penmanship  had  an  ink- 


LET.  XXV.]  Correspondence.  187 

ling  of  the  angry  impatience  of  the  Board,  whilst  his 
meaning  is  puzzled  over  and  painfully  extracted,  he 
would  promptly  *  take  a  thought  and  mend,'  and  never 
cease  to  mend,  until  he  had  achieved  a  handwriting  which 
should  at  least  be  readable.  Better  a  hand  of  even  extra 
uncouthness  which  is  legible,  than  one  with  the  beauty  of 
copper-plate  from  which  no  man  can  extract  a  meaning. 
'Better,'  the  Spaniards  say,  *ride  an  ass  that  carries 
you  than  a  horse  that  throws  you.' 

And  next  to  clearness  of  statement,  a  Manager  should 
study  brevity,  which  is  no  less  the  soul  of  business  than 
of  wit.  The  limited  time  during  which  committees  of 
Bank  Directors  usually  sit,  and  the  variety  of  matters 
which  they  must  dispose  of  at  each  sitting,  do  not 
afford  the  time  to  read  a  roundabout  epistle :  it  has  to 
be  abstracted.  The  official,  whose  business  it  is  to 
operate  upon  verbosity,  mentally  applies  the  knife,  and 
fluent  pages  are  thus  cut  down  sometimes  to  as  many 
lines.  If  the  exactitude  of  a  Manager's  views  is  im- 
paired by  this  process,  he  has  himself  to  blame :  the 
writer  'who  draweth  out  the  thread  of  his  verbosity 
finer  than  the  staple  of  his  argument '  has  to  undergo 
compression  ;  his  sentiments  have  to  undergo  the  opera- 
tion of  being  '  limited  and  reduced.' 

And  in  your  correspondence  with  your  Head  Office, 
whilst  you  seek  to  express  your  views  upon  the  matters 
in  hand  with  respectful  firmness,  it  will  be  wise  to  avoid 
argument;  it  is  for  you  to  place  the  facts  before  the 
Directors,  not  to  guide  them  to  a  decision.  Nor  is 
*  tone '  a  quality  to  be  slighted  in  your  letters  to  head- 
quarters. When  you  wrote  the  letter  of  which  you 
speak,  on  behalf  of  a  deserving  charity,  and  enforced 
your  appeal  with  an  apt  quotation  from  the  Greek,  it  is 
hardly  matter  for  surprise  that,  although  your  appeal 
was  handsomely  responded  to,  you  had  a  gentle  hint 
to  confine  yourself  to  the  English  language  in  your 
future  communications  to  the  Head  Office.  A  business 
communication  has  no  place  in  it  for  the  classics  ;  a 
Greek    quantity  is  not  suggestive  of   a  sum    total : 


1 88  The  Country  Banker,  \_\xi.  xxv. 

in  matters  so  peculiarly  British  as  pounds,  shillings,  and 
pence,  the  English  language  is  the  natural  vehicle  for  the 
conveyance  of  thought. 

When  upon  another  occasion  you  suggested  that  one 
Brown  by  name,  an  obstinate  debtor,  should  be  handed 
over  to  your  solicitors,  with  the  expression  of  a  hope 
that  they  would  make  him  look  Blue,  it  is  even  less 
matter  for  surprise  that  you  were  invited,  in  reply,  to 
abstain  in  future  from  jocosity  in  matters  of  business. 
Even  if  your  little  joke  had  been  feebler  than  it  was, 
which  is  impossible,  your  whole  Board  of  Directors, 
remember,  had  to  sit  upon  it  No  wonder  that  the 
Manager  was  instructed  to  sit  upon  you  instead.  A 
bank  Board  is  not  given  to  exchanges  of  drollery  with 
its  officers ;  its  business  is  with  realities,  some  of  them 
stern  enough,  but  none  of  them  so  trivial  as  to  be  dis- 
missed with  a  jest. 


Letters  to  Customers.  In  your  intercourse  with 
your  clients,  you  will  find  it  a  safe  observance,  never  to 
discuss  with  a  customer  the  position  of  his  account  by 
letter,  if  you  can  by  any  means  arrange  to  do  so  by 
word  of  mouth.  If  the  discussion  has  to  be  of  an  un- 
pleasant cast,  the  mere  putting  it  in  writing  will  give  to 
your  missive  a  formality  and  bite  of  their  own. 

Let  us  say  that  you  have  written  to  a  man  to  reduce 
or  pay  off  his  account ;  you  have  probably  heard  some- 
thing to  his  disadvantage,  but  you  cannot  well  say  so  in 
writing,  or  give  your  authority.  He  has  no  chance  there- 
fore of  confuting  the  charge,  because  you  do  not  give  it 
him  to  confute  ;  whereas,  if  you  had  a  friendly  talk  with 
him,  freed  from  the  constraint  of  putting  everything  into 
writing,  he  might  be  able  to  disabuse  your  mind  of  what 
may  be  rankling  there  to  his  prejudice.  It  is  at  least 
certain  that  a  man  will  reveal  more  of  his  mind  to  you, 
in  ten  minutes*  talk,  in  the  seclusion  of  your  private  office, 
than  he  will  ever  be  able  to  express  or  put  his  hand 
to  in  writing. 


LK.  XXV.  J  Correspondence.  189 

It  is  a  further  objection  to  your  conveying  to  a  custo- 
mer wishes  of  an  unpleasant  nature  by  letter,  that  he 
may  be  from  home  at  the  time,  and  your  missive  be 
opened  by  some  one  in  his  absence.  If  this  some  one 
should  happen  to  be  a  nervous  wife  or  a  loose-tongued 
clerk,  your  client  will  have  a  right  to  ask  why  you  sent  this 
epistolary  explosive  after  him  without  a  word  of  notice. 
Rather  than  be  thus  brought  to  book,  he  would  have 
endured  an  hour's  warming  in  your  sweating-room,  at 
any  degree  of  financial  heat.  Your  customers,  without 
exception,  will  prefer  to  discuss  the  delicate  questions  of 
their  overdrafts  and  bills  in  camera ^  rather  than  through 
the  General  Post  Office  ;  and  you  will  do  wisely  to 
humour  them  in  this  preference. 


A  Banker's  Opinion  in  confidence.  There 
is  perhaps  no  more  difficult  or  delicate  task  which 
the  Manager  of  a  bank  has  constantly  to  perform 
than  to  give  expression  to  his  opinion,  in  confidence,  of 
the  position  and  trustworthiness  of  individuals  or  firms. 
When  that  position  is  intimately  known  to  the  Bank, 
either  by  the  evidence  of  the  man's  balance-sheet,  or  the 
possession  of  his  deeds,  or  bonds,  or  shares,  for  safe 
custody,  there  is  no  difficulty ;  and  the  Manager  has  no 
hesitation  in  giving  his  opinion  in  confident  terms  and 
in  the  plainest  English. 

But  occasions  continually  arise  where  the  facts  re- 
quired are  not  so  clear.  Your  knowledge  of  the  person 
enquired  about,  for  example,  may  be  at  second  hand.  If 
so,  you  have  equally  to  guard  against  doing  an  injury  to 
the  man's  credit,  and  leading  the  enquirer  into  a  false 
security.  But  whatever  shape  your  answer  may  take  in 
such  a  case,  you  must  make  it  clear  that  it  is  based  on 
hearsay  only,  and  that  you  have  no  personal  knowledge 
of  the  person's  means.  There  is  no  reason  why  you 
should  assume  the  responsibility  of  giving  as  your  own 
the  opinion  of  others,  which,  however  honest,  may  ne- 
vertheless be  fallacious  and  misleading.    You  may,  on 


190  The  Country  Banker,  [let.  xxv. 

your  own  responsibility,  report  the  man  enquired  about 
to  be  respectable,  or  a  shrewd  man  of  business,  or  a  man 
who  appears  to  have  credit  in  the  trade  for  the  amount 
named,  or  even  that  you  yourselves  occasionally  trust 
him  for  such  a  sum  without  security  ;  all  this  you  may 
properly  and  prudently  say,  if  you  can  do  so  in  accord- 
ance with  the  facts.  Such  statements  will  not  prejudice 
your  customer,  and  they  will  put  it  upon  the  enquirer  to 
judge  for  himself  and  draw  his  own  conclusions. 

If,  on  the  other  hand,  the  individual  enquired  about  is 
neither  respectable  nor  shrewd ;  if  he  is  short  of  capital 
and  of  small  credit  with  the  trade,  you  must  say  so ; 
but  you  will  say  so  'on  report'  You  will  state  the 
facts,  so  far  as  they  have  reached  you,  without  endorsing 
them  as  your  own.  If  you  neglect  this  precaution,  the 
person  thus  adversely  reported  upon  may  take  pro- 
ceedings against  your  Bank  for  defamation,  if  your 
report  should  reach  his  ears,  which  it  may  possibly  do  ; 
because  the  absolute  confidence  with  which  a  Banker 
imparts  such  information,  although  widely  respected,  is 
violated  at  times.  But  in  such  event,  if  it  is  apparent  to 
the  Court  that  you  have  simply  stated  the  truth,  as  far  as 
it  was  known  to  you,  without  malice,  you  have  no  cause 
to  fear  the  result.  Proceedings  which  have  their  in- 
ception in  a  thirst  for  something  like  blood-money,  are 
more  hkely  to  end  in  a  verdict  which  shall  be  in  closer 
neighbourhood  to  a  farthing  than  a  thousand  pounds. 

The  action  brought  against  your  Bank  by  Grindley 
&  Co.  for  misrepresentation  was  of  an  opposite  kind  : 
they  sued  you,  not  for  giving  too  bad,  but  for  giving  too 
good  an  opinion  of  your  then  customer,  Gabriel  White. 
Your  Manager,  in  reply  to  an  enquiry  from  the  bankers 
of  the  Grindleys,  had  given  it  as  his  opinion  that  White 
was  undoubted  for  the  amount  named ;  but  White  un- 
fortunately failed  a  few  weeks  afterwards :  whereupon 
Grindley  &  Co.  brought  their  action,  on  the  ground  that 
they  had  trusted  White  with  many  hundred  pounds' 
worth  of  goods,  on  the  strength  of  the  Bank's  opinion 
In  their  declaration  they  went  a  step  beyond  this,  and 


LET.  XXV.  ]  Correspondence.  1 9 1 

roundly  charged  the  Bank  with  having  given  this 
opinion,  with  the  nefarious  object  of  compassing  a  re- 
duction of  its  own  debt.  It  happened,  however,  that 
when  White  failed,  he  owed  the  Bank  rather  more  than 
when  your  Manager  gave  his  opinion,  and  the  plaintiffs 
were  non-suited.  If  your  Manager  had  given  a  less 
unqualified  opinion  as  to  the  position  of  White — if  he 
had  put  it  more  upon  current  report  and  less  upon  his 
own  assertion — White  would  have  had  no  ground  for 
complaint ;  the  Grindleys  would  have  had  no  ground 
for  an  action  ;  and  the  Bank  would  have  been  spared 
the  insult  of  being  charged  with  an  intent  of  which  it 
was  entirely  guiltless  and  incapable. 


LETTER    XXVI. 

COMPETITION    IN    BANKING. 

Sometimes  our  neighbours  want  the  things  which  we  have^  or 
have  the  things  which  we  want ;  and  we  bothfight^  till  they  take 
ourSf  or  give  us  theirs.  Swift. 

The  opening  of  a  Branch  of  the  Bolchester  Bank  in 
Oxborough  has  filled  you  with  resentment  and  some- 
thing like  dismay.  *  They  are  pushing  themselves  here, 
there,  and  everywhere,'  you  state, '  in  seatch  of  deposits, 
and  care  not  what  interest  they  allow,  provided  they  get 
the  money.  Their  terms  for  discounts  and  advances  are 
more  liberal  and  less  exacting  than  ours,  and  scores  of 
our  accounts  will  be  sure  to  go  over  to  them.' 

To  add  to  their  offences,  they  have  taken  into  their 
service  one  of  the  clerks  in  Messrs.  Yewtrey  &  Co.'s 
Bank,  purposing  through  him,  you  suggest,  to  ascertain 
where  the  Old  Bank's  deposits  lie.  But  it  is  possible 
that  in  this  indictment  you  accuse  the  new  comers  un- 
justly. Although  the  taking  into  their  employment  a 
clerk  from  either  of  the  existing  banks,  under  the  cir- 
cumstances, may  expose  their  motives  to  suspicion,  no 
respectable  institution  would  seek  in  this  way  to  hunt 
up  and  prey  upon  the  business  of  another  bank. 

The  report  that  the  new  comers  enticed  the  clerk  from 
Yewtrey  &  Co.  into  their  service  is  probably  untrue. 
It  is  at  least  equally  probable  that  he  applied  for  the 
appointment  in  the  first  instance,  with  a  view  to  better- 
ing his  position  ;  against  which  there  is  no  law.  Every 
clerk  in  a  bank  has  a  right  to  seek  an  appointment  in 
another  bank,  if  he  sees  fit, — but  always  with  this  proviso, 
that  he  does  not  betray  to  his  new,  the  secrets  of  his  late 


LET.  XXVI.]         Competition  in  Banking.  193 

employers.  He  has  signed  a  solemn  declaration  to  this 
effect ;  and  if  he  is  capable  of  violating  this  covenant,  he 
may  prove  a  bad  bargain  to  his  new  masters.  A  clerk 
capable  of  an  act  of  perfidy  like  this,  is  not  morally  fitted 
for  the  service  of  any  bank.  If  he  has  proved  false  to 
one  employer,  it  is  a  reasonable  assumption  that  he  may 
prove  false  to  the  other,  whenever  the  occasion  oflfers, 
and  a  second  act  of  treason  shall  appear  to  be  worth  the 
doing. 

Your  fear  that  the  new  comers  will  ofi'er  more  than  the 
market  rate  of  interest,  and  thus  drain  away  thousands 
of  your  deposits,  may  be  equally  groundless.  The  Bol- 
chester  Bank  is  a  respectable  institution,  and  is  unlikely 
to  give  more  than  the  current  rate  for  deposits ;  but,  if 
otherwise,  and  its  rates  are  what  you  are  informed  and 
believe  them  to  be,  the  Bolchester  Bank  will  not  trouble 
Oxborough  nor  any  other  place  for  long.  The  first 
money  panic  will  bring  it  to  book. 

If  the  alleged  munificence  of  the  Bolchester  Bank  in 
advances  and  discounts  should  enmesh,  as  you  seem  to 
fear,  and  draw  away  a  portion  of  your  business,  the  haul 
will  consist  of  customers  who  find  themselves  cramped, 
by  what  they  consider  your  antediluvian  views  about 
security,  and  who  will  ardently  embrace  any  less  exact- 
ing system  of  banking.  It  may  be  that  other  accounts, 
which  you  are  unwilling  to  lose,  may  be  included  in  the 
haul ;  nevertheless  the  ultimate  balance  of  advantage 
may  not  rest  with  the  aggressors.  Against  the  few  good 
accounts  which  you  may  lose,  you  have  to  set  the  more 
than  doubtful  ones  which  they  may  gain. 

Such  being  the  situation,  would  it  not  be  a  wiser  policy, 
as  soon  as  you  can  subdue  your  present  sense  of  injury 
and  repugnance,  to  place  yourself,  let  us  say,  on  speaking 
terms  with  the  intruders  ;  rather  than  hold  yourself  scorn- 
fully aloof  and  regard  them  with  a  bootless  resentment  ? 
Instead  of  ignoring  their  existence,  it  might  be  better  to 
come  to  an  early  understanding  with  them  as  to  rates ; 
Otherwise  you  may  find  yourselves  speedily  at  work, 


194  I'he  Country  Banker,  [let.  xxvi. 

inflicting  lasting  injury  on  each  other's  business  with 
mutual  diligence  and  fervour.  If  you  do  not  so  arrange, 
Mr.  Nayler  will  hardly  be  himself,  if  he  fail  to  play  one 
bank  off  against  the  other,  to  the  detriment  of  both  ; 
and  his  example  will  spread. 

But  whatever  course  your  action  may  take,  this  is 
certain — the  new  comers  have  planted  themselves  in 
Oxborough,  and  no  unfriendliness  on  your  part  will  of 
itself  cause  them  to  budge  out  again  ;  on  the  contrary, 
the  greater  your  obvious  dislike,  which  they  will  ascribe 
to  fear,  the  higher  will  mount  their  estimate  of  the 
business  which  they  hope  to  share  with  you,  and  the 
less  their  inclination  will  become  to  retire  from  the 
field. 

Let  us  suppose  that  you  decline  to  put  yourselves  on 
amicable  relations  with  the  intruders,  and  that  your 
intolerant  attitude,  and  the  scornful  terms  in  which  you 
openly  speak  of  that  *  filibustering  concern  from  Bol- 
chester,'  have  reached  the  ears  of  its  Directors  and 
inflamed  them  with  an  animosity  equal  to  your  own, 
and  that  war  to  the  knife  is  the  consequence. 

Whilst  the  contest  lasts,  Oxborough  will  have  '  a  good 
time'  in  banking;  unheard-of  rates  of  interest  for  deposits, 
discounts  at  less  than  bank  rate,  and  overdrafts  for  the 
asking  !  It  will  be  a  monetary  carnival,  and  Oxborough 
will  be  financially  debauched. 

No  doubt,  during  the  contest,  yOu  will  have  punished 
the  enemy  handsomely  and  done  enough  for  glory, 
although  you  have  failed  to  dislodge  him  ;  but  what  of 
your  own  scars  t  What  of  the  fissures  and  gaps  made  in 
the  profits  of  Oxborough  Branch,  which  it  will  take  years 
to  fill  up,  if  indeed  your  profits  shall  ever  regain  their 
former  scale  and  level }  For  Oxborough  will  financially 
have  tasted  blood  ;  and  it  will  not  be  an  easy  or  a  plea- 
sant task,  to  bring  its  people  back  again  to  the  condition 
of  things  which  prevailed  before  the  war. 

The  opening  of  an  additional  bank  in  a  town  may  not 
be  in  every  sense  an  unmitigated  injury  to  the  existing 
banks.     The  new  comers  have  their  way  to  make,  and  as 


LET.  XXVI.]         Competition  in  Banking,  195 

new  brooms  sweep  clean,  they  will  search  out,  by  means 
of  their  friends  and  connections,  those  who  have  not  as 
yet  kept  any  bank  account — a  less  numerous  class  than 
formerly,  but  a  class  by  no  means  extinct  as  yet  in  rural 
parts.  The  new  comers  from  Bolchester,  on  their  own 
behalf,  will  give  the  banking  soil  of  your  district  a  fresh 
turn-over,  so  to  speak  ;  but  this  may  serve  indirectly  to 
fertilize  your  business  as  well.  They  will  have  awakened 
certain  people  for  the  first  time  to  the  advantage  of  keep- 
ing a  bank  account,  but  not  necessarily  with  the 
Bolchester  Bank,  The  converts,  before  acting  upon  their 
conversion,  will  naturally  talk  the  matter  over  with  their 
friends,  and  be  guided  by  them  as  to  the  bank  to  which 
they  will  take  their  business. 

Now  Messrs.  Yewtrey  &  Co.  have  been  established  in 
Oxborough  for  over  a  century,  and  your  own  Bank  has 
had  its  Branch  there  for  half  that  time ;  whereas  the 
Bolchester  Bank  is  to  the  traders  and  householders  of 
Oxborough  a  thing  of  yesterday,  of  which  they  know 
nothing.  Moreover,  for  one  shareholder  which  it  has  in 
your  district,  your  own  Bank  has  at  least  a  score ;  so 
that  altogether,  the  invaders  will  be  heavily  handicapped, 
and  will  have  to  compete  for  fresh  business  with  the  Old 
Bank  and  yourselves  at  serious  odds. 

You  would  plant  a  Branch  in  the  Bolchester  district 
forthwith,  by  way  of  counterslap.  But  in  banking,  you 
do  not  levy  war  on  the  territory  of  a  neighbour,  merely 
because  you  have  a  spite  against  him.  Questions  of 
larger  concern  than  the  condition  of  your  spleen  have  to 
go  to  the  consideration  of  that  matter.  For  one  thing, 
an  aggressive  policy  may  provoke  reprisals  ;  but  of  this 
more  hereafter. 

On  the  whole,  it  would  seem  to  be  the  wiser  course 
to  be  on  terms  of  amity  with  your  new  rivals.  Under 
the  most  favourable  circumstances,  they  have  long  years 
of  uphill  work  ahead  of  them,  before  they  can  do 
more  than  cover  expenses.  It  may  happen  that  they 
have    over     estimated    their     chances    of   success    in 

o  f 


196  The  Country  Banker >  [let.xxvi. 

Oxborough,  and  after  a  time  may  feel  so  dissatisfied 
with  the  result  as  to  close  their  Branch.  In  this  event, 
they  will  have  something  to  give  away.  But,  if  up 
to  the  date  of  this  determination  of  theirs,  you  are  still 
at  daggers-drawn  with  them,  it  is  needless  to  remark 
that  they  will  have  no  desire  that  a  single  account  of 
theirs  shall  come  to  you,  which  they  can  by  possibility 
send  elsewhere. 

*  Let  right  reason,'  says  Sir  Thomas  Browne,  *  be  thy 
Lycurgus,  and  lift  up  thy  hand  unto  the  law  of  it :  move 
by  the  intelligencies  of  the  superior  faculties,  not  by  rapt 
of  passion,  nor  merely  by  that  of  temper  or  constitution. 
They  who  are  merely  carried  on  by  the  wheel  of  such 
inclinations,  without  the  hand  and  guidance  of  sovereign 
reason,  are  but  the  automatous  part  of  mankind,  rather 
lived  than  living,  or  at  least  underliving  themselves.' 


LETTER    XXVII. 
A   NEW   BANK    FOR    OXBOROUGH. 

•  Tdl  me,  seist  thou  not  yon  knight  commg  towards  us  on  a 
dapple  grey  steed,  with  a  hebnet  of  gold  on  his  head  1 '  *  What 
I  see  and  perceive^  answered  Sancho,  *  is  only  a  man  on  a  grey 
ass,  like  .nine,  with  something  on  his  head  that  glitters' 

Don  Quixote. 

The  material  progress  of  Oxborough  must  be  con- 
siderable, seeing  that  you  have  hardly  recovered  from 
the  shock  of  the  invasion  from  Bolchester,  before  you 
are  threatened  with  a  new  bank-— 'The  Oxborough 
Mutual  Benefit  Banking  Company,  Limited/ 

The  promoter  is  our  old  acquaintance,  Mr.  Howard 
Bagster,  and  the  prospectus  sets  forth  among  other 
things  the  enormous  profits  of  banking.  It  gives  an 
attractive  list  of  banks  whose  dividends  range  from  lo 
to  20  per  cent.,  with  an  average  of  1 5  ;  and  whose  shares 
stand  at  premiums  ranging  from  100  to  300  per  cent. 
Mr.  Bagster,  it  will  be  observed,  selects  only  the  best 
paying  banks  for  his  basis.  He  makes  no  mention  of 
banks  paying  less  than  10  per  cent.  That  would  have 
fatally  damaged  his  average  of  1 5  per  cent.,  and  broken 
the  back  of  his  design. 

Neither  does  he  allude  to  the  fact  that  the  banks  now 
paying  high  dividends  were  established  for  the  most  part 
some  half  century  ago.  They  did  not  pay  1 5  per  cent, 
then.  In  the  earlier  stages  of  their  history,  some  of  the 
greatest  and  most  successful  of  our  existing  banks  paid 
dividends  not  exceeding  4  or  5  per  cent,  for  years — 
sometimes  none  at  all.  Some  few  had  to  write  off  a 
third  or  fourth  of  their  paid-up  capitals.     Others  again 


1 98  The  Country  Banker.  [let.  xxvn. 

of  our  aboriginal  Joint  Stock  Banks  did  even  worse — they 
lost  their  all,  and  are  long  since  dead  and  buried.  But 
their  record  was  not  interred  with  them,  although  there 
is  no  mention  of  it  in  the  prospectus :  the  framers  of 
that  document  would  not  have  its  radiant  view  of  things 
clouded  by  unpleasant  memories. 

Bank  dividends  ranging  from  lO  to  20  per  cent,  are 
not  reached  at  a  bound.  They  never  have  been  in  the 
past,  and  in  the  nature  of  things  they  never  can  be  in 
the  years  to  come.  The  dividends  of  the  future  will 
necessarily  be  more  tardy  of  growth  than  those  of  the 
past,  if,  indeed,  they  be  not  retrogressive.  When  our 
existing  banks  were  constituted,  there  was  a  magnificent 
area  of  virgin  soil  for  them  to  occupy  and  till.  But  such 
a  superficies  no  longer  exists.  It  has  been  gradually 
occupied,  point  after  point,  by  the  present  banks;  so 
that  there  is  no  unreclaimed  territory  for  fresh  banks  to 
squat  upon.  They  cannot,  therefore,  hope  to  achieve 
the  splendid  successes  of  their  forerunners.  The  banking 
crop  has  been  already  gathered,  and  they  can  only  follow 
as  gleaners  in  the  footsteps  of  the  reapers.  For  any- 
thing beyond  this,  new  banks  must  fight  the  old  ones  ; 
or  be  content  for  years  to  come  with  a  rate  of  annual 
dividend  which  will  not  excite  their  proprietors  to 
enthusiasm. 

It  is  true  they  can  fight  the  old  banks,  by  offering 
more  liberal  terms  to  the  public ;  although  competition 
has  already  reduced  those  terms  to  a  degree  of  fineness, 
which  it  will  be  difficult  to  attenuate  further,  if  any 
reasonable  margin  is  to  be  left  for  dividends.  You  can- 
not purchase  first-class  country  bank  shares  even  now,  to 
yield  you  more  than  5  per  cent. — far  less  15. 

But  in  any  event,  the  game  of  competition  is  one  at 
which  the  old  banks  can  play,  and  doubtless  will  play, 
equally  with  their  assailants,  at  every  point  where  they 
are  attacked.  They  will  not,  without  a  struggle,  part 
with  business  which  has  cost  them  the  labour  and  con- 
tention— the  losses  and  anxieties  of  half  a  century  to 
build  up.     They  will  object  to  promoters  seeking  to  reap 


L«T.  XXVII. J  A  New  Bank  for  Oxborough.  199 

where  they  have  not  sown,  and  in  a  war  of  rates  will 
fool  them  to  the  top  of  their  bent.  But  that  is  a  pas- 
time at  which  the  new  banks  would  play  at  fatal 
disadvantage.  A  course  of  banking,  pursued  for  a  time 
at  certain  points  at  a  loss,  would  make  but  a  slight 
impression  on  the  large  reserve  funds  of  the  old 
banks ;  but  such  a  course  would  be  ruinous  to  the 
new  ones,  because  they  would  have  no  such  funds 
to  fall  back  upon,  neither  would  they  have  much  to 
look  forward  to.  They  will  have  damaged  their  rivals 
to  a  certain  extent ;  but,  in  doing  so,  they  will  have 
cut  the  ground  from  under  their  own  feet,  and  rendered 
banking,  at  any  reasonable  profit  to  themselves,  an 
impossible  business. 

A  new  bank,  if  it  shall  survive  the  period  of  its  early 
youth,  will  do  well  if  it  pays  its  expenses  and  divides 
nothing  among  its  shareholders  for  the  first  few  years : 
but  this  fact,  although  a  part  of  banking  history, 
finds  no  place  in  Mr.  Bagster's  prospectus.  It  might 
cool  the  ardour  of  applicants,  and  abate  the  rush  for 
shares. 

Mr.  Bagster  does  not  suggest  to  subscribers  that  high 
dividends  are  only  reached  after  an  ascent  which  is 
always  long,  often  difficult,  and  sometimes  dangerous. 
He  does  not  invite  them  to  put  their  feet  on  the  lowest 
rung  of  the  ladder,  to  work  their  gradual  way  upwards  : 
he  places  them,  by  suggestion,  on  the  top  rung  at  start- 
ing. He  makes  no  mention  of  the  fact,  that  the  large 
dividends  now  paid  by  some  of  our  banks,  only  yield  in 
reality  something  like  5  per  cent,  to  their  present 
proprietors. 

The  Mutual  Benefit  Banking  Company  of  Oxborough, 
is  to  be  worked  on  principles  new  to  English  banking, 
and  is  to  bring  light  and  joy  to  depositors  and 
borrowers  alike,  whatever  hap  of  fortune  it  may  bring 
to  its  proprietors.  Bank  commission  is  to  become  a 
thing  of  the  past,  and  depositors  are  to  be  paid  rates 
of  interest  unparalleled  in  banking  history.  Profits  are 
to  be  rateably  divided  betwixt  shareholders  and  cus- 


2Qo  The  CoufUry  Banker,  [iat,  xxvn. 

tomers,  but  how  this  remarkable  equation  is  to  be  worked 
out  is  not  explained  ;  it  is  discreetly  left  to  the  imagi- 
nation. But  as  the  Mutual  Benefit  Bank,  conducted  on 
the  lines  proposed  by  the  prospectus,  can  never,  by 
human  effort,  make  any  profit  at  all,  its  method  for  the 
division  of  nothing  ceases  to  be  of  human  interest. 

It  may  seem  waste  of  time  to  have  troubled  ourselves 
at  all  with  Mr.  Bagster  and  his  prospectus  ;  but,  except- 
ing the  special  absurdity  of  the  *  mutual  benefit '  principle, 
which  he  proudly  claims  for  his  own,  the  document  in 
other  respects  is  only  an  average  sample  of  its  kind.  It 
makes  quotation  of  the  most  successful  banks,  but 
refrains  from  all  mention  of  the  less  fortunate.  It  parades 
the  dividends  and  premiums  of  to-day,  but  gives  no 
place  to  the  dividends,  or  no  dividends,  the  losses  or 
failures,  of  the  past.  It  leads  the  unwary  to  the  belief 
that  an  average  return  of  15  per  cent,  per  annum  is  the 
ordinary  result  of  banking,  and  within  the  reach  of 
everybody :  and,  unhappily,  there  is  nothing  which  a 
promoter  can  allege  on  the  subject  of  banking  too  g^oss 
for  some  people  to  swallow. 

Instead  of  building  on  this  illusory  dividend, — this 
15  per  cent,  of  the  prospectus,  the  prudent  may  find  it  a 
safer  policy  to  invest  their  money  in  the  shares  of  old 
established  banks,  even  if  the  investment  should  yield 
them  only  a  bare  5  per  cent. 

The  old  banks  have  borne  the  searching  tests  of  time, 
and  change,  and  panic,  and  stand  forth  purified  and 
strengthened  by  the  ordeal.  But  what  is  of  still  more 
consequence — they  understand  their  business  ;  whereas, 
a  new  bank  has  practically  its  business  to  learn,  and  the 
inevitable  *  footing '  to  pay.  Its  earlier  years  will  be  a 
long  struggle  with  all  the  ills  of  infant  banking.  It 
must  do  business  which  other  banks  do  not  care  to 
retain,  or  it  must  offer  to  transact  good  business  on  more 
tempting  terms,  and  thus  work  at  a  margin  of  profit 
slightly  removed  from  nothing.  If  its  constitution  be 
hardy,  it  may  work  its  way  to  a  position  of  some  kind 
after  many  years  ;  but  its  dividends,  meanwhile,  will  be 


LET.  xxvii.j  A  New  Bank  for  Oxborough,  201 

of  the  smallest,  and  its  shares  will  find  their  natural 
level,  at  a  point  perceptibly  below  par,  rather  than 
above  it. 

On  the  whole,  the  would-be  investor  in  bank  shares 
had  best  take  counsel  with  himself,  whether  5  per  cent, 
in  hand  may  not  be  preferable  even  to  1 5  per  cent,  in 
the  bush. 


Our  discussion,  thus  far,  of  the  daily  work  of  a  Country 
Bank,  although  for  the  most  part  of  general  application 
to  the  business  of  banking,  has  been  directed  more  to 
the  business  of  a  Branch  than  to  the  administration  of  a 
Head  Office, — a  question  to  which  I  now  propose  to 
turn,  in  the  hope  and  expectation  that  you  may  some 
day  rise  to  the  position  of  Manager-in-chief. 


LETTER    XXVIII. 

THE    OFFICE    OF    CHIEF    MANAGER. 

Preserve  the  right  ofthyplace^  but  stir  not  questions  ofjufisdic- 
tion,  and  rather  assui7ie  thy  right  in  silence  and  de  facto  than 
voice  it  with  claims  and  challenges.  Preserve  likewise  the  rights 
of  inferior  places^  and  think  it  more  honour  to  direct  in  chief  than 
to  be  busy  in  all.  Bacon. 

When  you  succeed  to  the  supreme  management  of 
the  Bank,  you  will  enter  upon  duties  of  a  higher  grade, 
and  responsibilities  of  wider  range  than  you  had  to  un- 
dertake at  Oxborough.  The  working  of  a  Branch  will 
seem  to  you  but  a  small  matter,  when  compared  with 
the  management  of  the  Central  office  and  its  thirty 
dependencies.  Whilst  Manager  at  Oxborough,  you 
were  one  of  a  hundred  and  fifty  subordinates,  of  all 
ranks ;  at  the  Central  office,  you  will  be  head  over  all. 
The  provincial  Managers,  who  were  your  equals  yester- 
day, will  have  become  your  official  inferiors  to-day. 

As  the  Manager  of  a  Branch,  you  looked  to  your 
Manager-in -chief  for  guidance  in  all  large  or  excep- 
tional matters :  you  will  now  have  to  trust  for  that 
guidance  to  your  own  head  alone,  and  your  thirty 
representatives  at  the  Branches  will  have  to  look  to  the 
same  source  for  '  light  and  leading '  in  all  difficulties. 

You  will  have  no  code  of  instructions  to  guide  you  as 
Manager-in-chief :  on  the  contrary,  you  will  now  have  to 
edit  that  compilation,  and  enrich  it  with  fresh  matter 
from  time  to  time,  as  experience  shall  suggest  or 
necessity  require.  It  will  be  your  part  now  to  instruct — 
not  to  receive  instruction  :  to  foresee  and  devise,  and  not 
to  look  to  others  for  foresight  or  resource. 


LET.  XXVIII.]  The  Office  of  Chief  Manager.  203 

It  would  be  unreasonable  to  expect  you  to  feel  no 
elation  on  the  occasion  of  your  ascent  to  the  official 
throne  of  the  Bank  :  but  it  will  be  well  to  carry  your 
fresh  honours  with  meekness,  were  it  merely  for  this, 
— that  the  susceptibilities  of  those  whom  you  have 
distanced  in  the  race  for  advancement  will,  for  a  time,  be 
tender  of  touch.  You  find  yourself  placed,  at  a  bound, 
on  a  pinnacle  of  promotion,  the  look  down  from  which 
may  pardonably  be  attended  at  first  with  a  certain 
giddiness  and  confusion  of  ideas :  but  do  not  let  a 
sense  of  what  you  owe  to  your  new  position  betray  you 
into  premature  activity.  If  you  would  gather  up  the 
reins  of  government,  with  the  skill  and  deliberation  of 
one  who  knows  what  he  has  before  him  to  do  and  means 
to  do  it,  let  your  attitude  for  a  time  be  one  rather  of 
observation  and  reflection  than  of  action.  Your  new 
and  varied  duties,  if  pondered  with  calmness  and  care, 
will  gradually  assume  their  relative  proportions  and 
perspective,  and  the  order  and  method  of  your  manage- 
ment will  speedily  lie  straight  and  clear  before  you. 

One  of  the  most  onerous  of  your  fresh  duties  will  be 
your  daily  intercourse  with  your  Managers  at  the 
Branches.  This  must  be  by  letter,  because  your  oppor- 
tunities of  personal  intercourse  with  them  will  necessarily 
be  few.  But  you  cannot  conduct  this  correspondence 
with  your  own  hand,  because  your  other  duties  will 
leave  you  with  little  time  for  letter-writing.  That,  for 
the  most  part,  must  be  done  by  the  Secretary  of  the 
Bank,  under  your  instructions.  These  will  necessarily 
be  brief— conveyed  in  a  sort  of  mental  shorthand — and 
it  will  be  his  work  to  put  them  into  shape. 

It  may  be,  that  the  Secretary  of  the  District  Union 
Bank  is  one  of  those  who  can  enter  into  another  man's 
thoughts,  and  express  his  views  as  perfectly  as  if  the 
thinker  himself  gave  form  and  utterance  to  them  ;  but 
this  is  a  gift  not  possessed  by  every  one  ;  indeed  it  is 
more  rare  than  common.  You  have  to  reflect,  in  any 
case,  that  your  Secretary,  whatever  his  qualifications  as  a 
scribe  may  be,  will  have  trying  questions  to  solve,  unwise 


204  1^^  Country  Banker,         [nr.xxvm. 

proposals  to  set  aside,  and  unreasonable  requests  to 
decline  from  time  to  time,  at  your  behest.  He  may,  as 
I  have  just  said,  be  your  faithful  echo  in  all  this  ;  but  he 
may  not  be.  He  may  be  of  an  irritable  temperament, 
and  take  the  bother  and  worry  of  reply  as  personal  to 
himself,  and  clothe  his  replies  accordingly  in  biting 
sarcasm  or  withering  rebuke.  You  will  no  doubt  see 
that  this  does  not  happen.  A  martinet,  as  secretary  of  a 
bank,  can  make  office  life  a  burden  to  its  provincial  staff. 
Moreover,  he  is  your  other  self  and  mouthpiece,  for  good 
or  evil  in  this  matter.  His  views  are  your  views,  in  what- 
soever garb  of  language  they  may  be  clothed.  His  very 
sarcasms, however  truculent,  go  to  the  Branches  'in  accord- 
ance with  instructions '  from  either  the  Board  or  yourself 

And  the  men  addressed,  it  has  to  be  observed, 
although  your  subjects  now,  were  your  equals  only  the 
other  day,  and  are  not  the  less  entitled  to  official  respect 
or  friendly  regard,  because  you  now  reign  over  them. 
The  best  of  Branch  Managers,  no  doubt,  has  his  failings  : 
and  it  is  certain  that  the  worst  of  them  has  his  feelings. 
Where  disapproval,  therefore,  or  even  censure,  has  to  be 
conveyed,  it  need  not  be  in  terms  calculated  to  affront 
or  wound.  A  mild  remonstrance  will  have  equal  weight, 
and  with  this  advantage, — it  will  not  dishearten  the 
recipient,  nor  incense  him  every  now  and  then  with  a 
helpless  rage. 

A  nagging  and  sarcastic  spirit  at  the  centre  of  au- 
thority, moreover,  is  apt  to  find  imitators  at  the  Branches. 
The  Manager  who  is  persistently  worried  by  the  Head 
Office,  may  be  driven  at  times  to  vent  his  spleen  on  his 
immediate  subordinates,  who  will  duly  pass  it  on  to  the 
juniors :  and  thus  an  occasional  free  fight  of  tongues 
may  result,  to  the  amazement  of  customers  and  scandal 
of  the  Branch. 

In  any  event,  let  it  not  be  in  the  power  of  any  pro- 
vincial Manager  to  quote  the  example  of  Head  Office  as 
an  excuse  for  a  needless  seventy  of  method  with  his 
own  little  staff.  Put  forth  your  strength  rather  with  the 
snaffle  than  was  the  double-bit  of  authority.     Let  your 


LET.  XXVIII.]  The  Office  of  Chief  Manager,  205 

intercourse  with  your  Branches  be  inspired  by  the 
genial  old  adage — 'Speak  fair  words  and  you  will 
always  have  kind  echoes,' — and  let  the  management 
of  the  Bank  throughout,  from  its  Central  office  to  its 
remotest  Branch,  be  in  unison  therewith. 

Your  work  at  the  Head  Office  will  differ  greatly  in 
another  direction  from  that  of  a  Branch  Manager.  At 
Oxborough,  you  knew  every  customer,  from  the  timid 
depositor  of  a  ten-pound  note  to  the  more  self-possessed 
borrower  of  a  thousand  or  two,  and  your  transactions 
with  the  whole  body  of  your  clients,  in  the  strictest  sense 
of  the  phrase,  were  *  personally  conducted.'  But  it  will 
be  impossible  for  you  to  maintain  a  continuous  personal 
control  of  every  account  at  your  Head  Office  and  at 
your  branches  as  well  In  a  great  measure,  you  will 
have  to  assign  the  charge  of  your  smaller  class  of 
accounts  and  transactions  to  one  of  your  lieutenants,  so 
that  you  may  devote  a  larger  share  of  your  attention  to 
the  control  of  your  larger  accounts  and  the  government 
of  your  finances.  In  a  word,  you  will  have  to  assign  to 
every  matter,  from  the  least  to  the  greatest,  its  relative 
weight  and  significance,  so  that  you  may  lay  your  time 
out  with  parsimony  on  small  affairs  and  lavish  it  the 
more  on  those  of  high  concern 

The  first  subject  which  will  engage  your  attention, 
when  you  fairly  settle  down  to  work,  will  naturally  be 
the  financial  position  of  the  Bank.  You  will  desire  to 
know  the  trim  of  the  vessel,  so  to  speak,  in  command  of 
which  you  are  about  to  enter  upon  a  voyage  of  mo- 
mentous interest,  alike  to  your  shareholders  and  yourself. 

Your  first  reference  will  be  to  the  balance-sheet  of  the 
Bank,  which  will  afford  you  a  bird's-eye  view  of  the 
situation.  It  will  show  you,  on  the  one  hand,  the  total 
amount  of  money  owing  by  the  Bank  to  the  public  and 
its  shareholders,  and,  on  the  other,  how  this  total  is 
laid  out. 

But  a  balance-sheet  deals  with  aggregates  only.  It 
will  set  forth  the  totals  advanced  on  overdrawn  accounts. 


2o6  The  Country  Banker         [let.xxvixi. 

on  bills  discounted,  and  in  other  ways  ;  but  not  the 
multifarious  items  of  which  these  totals  are  composed. 

Every  bill  in  your  bill  case  ;  every  overdrawn  account 
in  your  ledgers ;  every  security  you  hold  ;  whether  these 
relate  to  your  business  at  the  Head  Office,  or  one  or  other 
of  your  thirty  Branches ;  must  each  in  turn  be  to  you  a 
matter  of  patient  scrutiny  and  careful  valuation,  before 
you  can  grasp  the  actual  position  of  the  Bank,  or  know 
the  measure  of  its  soundness  throughout. 

And  in  entering  upon  this  immense  audit  and  appraise- 
ment, I  conclude  that,  in  respect  of  overdrafts,  bills  and 
securities  at  the  Branches,  you  will  not  rest  content  with 
less  than  an  enquiry,  in  every  case,  on  the  spot  You 
will  thus  reap  the  advantage  of  seeing,  with  your  own 
eyes,  the  working  of  your  multitudinous  accounts,  as 
shewn  in  the  Branch  ledgers  ;  a  process  as  we  have  seen, 
which  throws  an  always  useful,  and  sometimes  vivid 
light  on  the  way  things  are  tending  with  the  parties  to 
the  accounts. 

Your  round  of  the  Branches  will  have  the  further 
advantage  of  bringing  you  into  personal  intercourse 
with  the  whole  of  your  provincial  staff ;  a  matter  which 
may  be  of  material  service  in  your  future  relations  with 
each  other.  An  officer  whom  you  have  never  seen,  and 
of  whom  you  have  no  knowledge,  except  by  report,  will 
be  little  more  to  you  than  a  lay  figure,  u»til  you  have 
had  speech  with  him  and  taken  stock  of  his  business 
method  and  general  capacity. 

When  you  have  mastered  the  position  of  every 
account,  the  worth  of  every  bill,  and  the  value  of  every 
security  held  by  the  Bank,  you  will  then  know  whether 
the  course  of  your  management  ought  to  be  towards 
restriction  or  expansion :  or  whether,  finding  your  re- 
sources, as  a  whole,  laid  out  with  safety  and  financial 
judgment,  you  will  enjoy  the  satisfaction  of  leaving  well 
alone. 


LETTER   XXIX 

BANKING    FINANCE. 

Se^st  thou  good  dayes  f  Prepare  for  evil  times :  no  summer 
but  hath  his  winter.  He  never  reaped  comfort  in  adversity  that 
sowed  it  not  in  prosperity.  Quarlec. 

Let  us  start  with  the  assumption  that  you  find  the 
District  Union  Bank  sound  to  the  core,  and  that  the 
aggregates  of  its  balance-sheet  represent  the  actual 
sums  and  present  values  of  the  multifarious  items  of 
which  they  are  composed. 

But  we  shall  understand  each  other  better,  perhaps.,  if 
we  proceed  at  once  to  fabricate  a  balance-sheet,  which 
shall  embrace  the  principal  heads  of  account  common  to 
English  country  banking ;  and  thus  present  something 
tangible  to  the  mind's  eye,  although  the  tangibility  be 
but  the  fictitious  liabilities  and  the  fabulous  assets  of  an 
imaginary  bank. 

Let  us  assume,  then,  that  on  your  accession  to 
the  management  in  chief  of  the  District  Union  Bank, 
its  Liabilities  and  Assets  are  as  understated,  and  that 
the  apportionment  of  the  assets  rests  on  the  following 


The  Reserve  is  taken  at  ONE-THIRD  the  Liabilities  to 
the  public : 

The  Advances  are  taken  at  the  amount  of  Capital  and 
Rest,  plus  ONE-FIFTH  of  the  liabilities  to  the  public. 


2o8  The  Country  Banker,  [let.  xxix. 

The  remaining  resources  of  the  Bank  are  absorbed  in 
Bills  of  Exchange. 

Liabilities. 

On  Deposit  Receipts       .     j^J"!, 3 50,000 
On  Current  Accounts      .         1,050,000 


2,400,000 

Notes  in  circulation      ...  50,000 

Drafts  after  date      ,         .         ;         .     .  20,000 

Acceptances  by  Bank  ....  30,000 

Bills  for  collection  and  other  items       .  50,000 


Total  liabilities  to  tlie  Public  ;^2, 5  50,000 

Paid-up  Capital        .        .        .   ;^300,ooo 
Rest,  or  Surplus  Fund         .    .      1 50,000 

450,000 


;g3,ooo,ooo 

Assets. 

Reserve  : 

Cash  in  hand    .....  ;f200,ooo 

Money  at  call  and  short  notice        .  350,000 

Consols 300,000 


850,000 
Advances,  overdrafts j  etc.         ...       960,000 

Bills  of  Exchange 1,190,000 


;^3,ooo,ooo 

These  figures  are  purely  arbitrary  ;  but  they  will  serve, 
as  well  as  others,  as  a  basis  for  discussion. 

And  first,  as  regards  the  liability  side  of  your  position. 
You  are  indebted  then,  to  depositors  and  others,  some 
two  and  a  half  millions  sterling. 


LET.  XXIX.]  Banking  Finance,  209 

Now,  although  it  is  certainly  within  the  range  of  possi- 
bility that  you  might  be  called  upon,  at  any  time,  to 
redeem  the  whole  of  this  formidable  liability  within  the 
compass  of  a  few  weeks,  the  chances  are  nevertheless  as 
millions  to  one  against  such  a  contingency  ever  coming 
to  pass. 

You  will  find  that,  in  ordinary  times,  your  deposits, 
as  a  whole,  maintain  a  moderately  uniform  level.  The 
deviations  on  either  side  of  the  main  line  of  average  will 
be  slight.  A  decrease  at  one  point  will  be  met  by 
an  increase  at  another;  the  closure  of  some  accounts 
by  the  opening  of  fresh  ones,  and  so  forth :  the 
general  result  being  that,  apart  from  these  slight  move- 
ments— these  ripples  on  the  surface,  so  to  speak — the 
great  volume  of  your  deposits  is  never  stirred  to  its 
depths.  The  minor  fluctuations,  of  which  we  now 
speak,  are  sufficiently  provided  for  by  your  cash  in 
hand  ;  in  fact,  this  is  the  primary  use  of  your  till- 
money. 

But  there  are  times  when  your  deposits  may  be 
exposed  to  exceptional  attack;  and  you  must  be  pre- 
pared at  all  times  to  meet  such  emergencies.  We  have 
seen  that  banks,  however  sound  and  powerful,  are  still 
as  much  exposed  to  senseless  and  mischievous  runs, 
as  they  were  in  the  dark  ages  of  banking,  a  hundred 
years  ago.  It  may  be,  that  the  District  Union  Bank 
will  never  be  so  assailed  ;  but  you  cannot  build  upon 
this  pleasing  forecast  as  a  certainty,  and  therefore  make 
no  provision  against  it.  It  may  be  'odds  beyond 
arithmetic  '  against  your  cash  safe  ever  being  attempted  ; 
but  that  would  hardly  justify  your  leaving  its  doors  wide 
open,  day  and  night. 

Neither  must  you  assume  that  you  will  always  be  able 
to  note  the  signs  of  a  coming  pressure  in  time  to  make 
due  provision  for  its  onset,  by  a  contraction  of  your 
discounts  and  a  recall  of  loans  and  overdrafts.  There 
may  be  no  sign  given.  A  run  does  not  usually  advertize 
Its  advent  a  month  or  so  beforehand,  and  some  of  our 
worst  panics  have  come  upon  us  without  much  previous 


210  The  Country  Banker,  [lbt.  xxix. 

warning.  You  cannot  pull  your  resources  together  in 
a  few  days,  or  a  few  weeks,  if  they  are  widely  spread 
and  difficult  of  realization.  The  normal  position 
of  a  banker  is  like  that  of  a  general  in  the  field, 
with  an  enemy  in  front  of  him,  against  whose  assault 
he  must  be  armed  at  all  points,  if  he  would  not 
find  himself  assailed  some  day,  and  suffer  loss  and 
discomfiture. 


The  Reserve.  To  guard  against  all  probable  de- 
mands, therefore,  I  have  put  your  immediately  avail- 
able resources — your  financial  reserve — at  one-third  the 
amount  of  your  liabilities  to  the  public. 

This  provision  will  appear  to  some  to  be  excessive. 
It  is  certainly  in  excess  of  the  reserve  usually  held  by 
some  country  banks ;  whilst  it  is  less  than  that  main- 
tained by  others.  The  range  of  usage  in  this  matter  is 
very  great,  and  is  governed,  in  some  measure,  by  the 
character  of  the  deposits  held. 

In  agricultural  districts  their  feature  is  permanence. 
In  centres  of  industrial  activity,  their  feature  is  insta- 
bility. A  ratio  of  reserve,  therefore,  which  might  be 
more  than  ample  in  one  case,  might  be  dangerously 
inadequate  in  another.^  Country  banks,  like  your- 
selves, holding  from  one  to  three  millions  of  deposits, 
hold  average  reserves  of  24  per  cent.  Others,  holding 
from  three  to  five  millions,  have  reserves  averaging  36 
per  cent.  {Economist,  19th  May,  1883). 

The  deposits  in  your  Bank  partake  of  both  classes — 
some  town,  some  country — and  in  placing  your  reserve 
at  33i  per  cent,  we  have  swerved  slightly  from  the  exact 
line  of  average ;  but,  such  as  it  is,  the  deviation  is  on  the 
side  of  safety. 

Moreover,  in  fixing  the  amount  of  your  reserve,  you 
have  to  take  into  account,  not  only  that  your  deposits 
are  subject,   at   uncertain   times,  to   serious  depletion, 

1  As  the  author's  argument  here  is  not  dependent  upon  actual 
figures,  but  upon  ratios,  his  figures,  although  obviously  out-of-date, 
have  been  allowed  to  stand. 


LUT.xxix.]  Banking  Finance,  211 

but  that  the  demand  upon  you  for  discounts  and  ad- 
vances is  also  subject  to  constant  variation.  Your 
reserve,  therefore,  should  always  be  sufficient  to  meet 
every  description  of  demand  upon  it, — if  you  would 
work  your  finances  without  friction  from  one  year's  end 
to  another,  in  times  of  ease,  as  well  as  in  times  of  trouble 
and  anxiety. 


A  Reserve  of  one-fifth.  A  further  argument  in 
favour  of  working  at  all  times  on  an  ample  reserve,  lies 
in  the  fact  that,  in  the  long  run,  it  even  '  pays  *  better, 
than  by  working  on  a  small  one.  In  illustration  of  this, 
let  us  say  that,  instead  of  a  reserve  amounting  to  one- 
third,  you  decide  to  finance  the  Bank  on  one  amounting 
to  a  fifth,  or  20  per  cent,  of  the  amount  of  your  liabilities 
to  the  public.  In  that  case,  your  reserve  will  stand  at 
;^5oo,cxx)  instead  of  ;^850,ooo,  and  you  will  thus  release 
;^ 350,000  for  other  employment 

You  would  employ  the  money,  thus  released,  in  the 
discount  of  mercantile  and  commercial  bills  of  a  high 
class — bills  which  would  be  negociable  at  any  time  in 
case  of  need. 

In  this  way  you  may  derive  a  possible  gain  of  one 
per  cent,  in  excess  of  what  the  money  would  yield,  if  left 
at  short  notice  with  your  bill-brokers.  That  would 
represent  an  addition  to  your  profits  of  ;^  3500  a  year. 
But  to  earn  this  profit,  you  have  to  discount  bills  to  the 
amount  of  a  million  and  a  half  every  year,  in  addition  to 
the  bills  you  already  hold,  and  thus  proportionately 
enlarge  your  business  risks. 

You  can  barely  hope  to  discount  this  formidable 
amount,  even  of  the  highest  class  of  mercantile  and 
commercial  paper,  without  meeting  with  an  occasional 
loss — a  loss  which  may  make  a  serious  inroad  at  any 
time  on  your  ;^35oo,  or  sweep  it  away  altogether.  You 
will  have  to  select  your  bills  with  super-human  ability  if 
no  such  mischance  shall  ever  befall  you. 

For  the  sake  of  argument,  however,  let  it  be  conceded 

p  1 


212  The  Country  Banker.  tL".  xxix. 

that  you  do  realize  this  extra  profit  of  ;^3500  a  year 
without  loss  or  abatement ;  the  question  still  remains, — 
Will  it  be  a  judicious  gain  ?  Will  there  be  no  col- 
lateral drawbacks — no  outbalancing  disadvantage  ?  Let 
us  see. 

I  assume  that  the  reserve  of  20  per  cent.,  of  which  we 
now  speak,  will  be  composed  of  the  items  following  : 

Cash  in  hand j^2CX),ooo 

Money  at  call 150,000 

Consols 150,000 


;^  500,000 


Now,  without  subjecting  your  finances  to  the  terrible 
strain  of  a  *  run,'  it  will  suffice  for  the  argument,  to 
imagine  a  drain  upon  your  deposits  at  a  time  of 
monetary  pressure — say  to  the  extent  of  10  per  cent.,  or 
;^ 2 50,000  in  all.  You  will  remember  that  in  December, 
1878,  the  drain  upon  certain  banks  averaged  16  percent, 
of  their  deposits,  and  in  the  case  of  one  of  them  reached 
26  per  cent. 

To  meet  the  supposed  demand,  you  have  only  your 
money  at  call  and  Consols  to  fall  back  upon,  because 
your  cash  in  hand  represents  simply  the  till-money 
required  to  carry  your  business  on  from  day  to  day,  and 
cannot  be  diminished.  After  exhausting  your  money  at 
call,  then,  you  would  still  have  to  provide  £  100,000  to 
meet  the  drain. 

To  do  this,  you  might  borrow  the  amount  on  your 
Consols ;  or  you  could  sell  them ;  or  you  might  re-discount 
a  portion  of  your  bills.  But  whichever  course  you  take, 
it  will  be  open  to  the  objection  that  it  will  be  sure  to  get 
wind.  If  it  should  leak  out  that  you  are  borrowing  or 
Consols,  the  report  will  be  that  you  are  being  '  carried 
through.'  If  you  sell  them,  the  inference  will  be  that 
you  are  hard  pushed.  If  you  resort  to  the  bill-market, 
9nd  thus  make  your  first  appearance   there  as  a  re- 


LET.  XXIX.]  Banking  Finance,  a  13 

discounting  bank,  the  fact  will  hardly  fail  to  pass  with- 
out comment  more  or  less  damaging. 

Rumours  such  as  these,  at  a  time  when  the  very  air 
is  charged  with  discredit,  conveyed  in  letters  'strictly 
confidential,'  from  friends  in  the  City  to  correspondents 
in  the  provinces,  are  swift  to  spread,  and  might  enlarge 
a  natural  drain  upon  your  deposits  to  serious  proportions, 
or  even  convert  it  into  a  '  run.* 

You  remind  me  that  there  are  your  overdrawn 
accounts  to  fall  back  upon,  and  also  that  you  might 
reduce  the  volume  of  your  discounts.  That  is  true ; 
but  either  of  these  processes  takes  time,  and  that  may 
not  be  at  your  command.  Even  the  most  obliging 
amongst  your  depositors  would  be  sorely  amazed,  if 
you  were  to  ask  them  to  call  again  in  a  month  or  six 
weeks,  by  which  time  you  expect  to  have  got  in  some 
of  the  money  which  you  have  lent  to  their  friends 
and  neighbours.  There  is,  in  fact,  only  one  way  of 
meeting  the  difficulty,  and  no  way  of  evading  it — the 
means  to  meet  a  sharp  drain  upon  your  deposits  must 
always  be  in  your  coffers,  or  at  your  immediate  control — 
before-hand. 

There  will  be  no  time  for  calling  in  advances,  or 
awaiting  the  falling  due  of  bills.  The  peremptory 
people  who  line  the  outside  of  your  counter,  awaiting 
the  payment  of  their  deposits,  will  each  have  his  pound 
of  flesh,  there  and  then,  even  if  you  sink  under  the 
operation. 

Let  us  assume,  however,  that  by  sales  of  Consols,  the 
re-discount  of  bills,  or  otherwise,  you  have  met  the 
drain,  and  that  you  have  subsequently  restored  your 
reserve  to  its  normal  amount — namely,  one-fifth  your 
liabilities — by  a  rigorous  curtailment  of  your  dis- 
counts and  advances  to  the  extent  required. 

But  with  what  cost  to  others  will  this  have  been 
accomplished  t  What  amount  of  anxiety,  inconvenience, 
and  loss,  will  the  withdrawal  of  your  usual  facilities, 
to  the  extent  of  a  quarter  of  a  million,  have  inflicted 
upon  numbers  of  your  constituents  ?    To  expect  that 


214  The  Country  Banker*  [let.  xxix. 

they  will  pass  the  infliction  by,  and  humbly  kiss  the 
rod,  would  be  to  take  a  too  complacent  view  of  the 
matter.  The  people  whose  discounts  you  have  re- 
stricted, or  whose  overdrafts  you  have  called  up,  will 
not  hold  themselves  bound  to  you  a  day  longer  than 
they  can  make  arrangements  with  other  banks  for  a 
transfer  of  their  accounts.  Neither  will  they  be  silent 
on  the  subject  of  your  treatment  of  them,  nor  tongue- 
tied  as  to  its  cause.  They  will  not  scruple  to  publish 
abroad  that  you  sacrificed  them  to  save  yourselves. 

And  such  an  imputation  may  prejudice  your  business 
in  another  direction — it  may  arrest  and  turn  aside  the 
backward  flow  of  your  deposits.  Those  who  have  with- 
drawn their  money  from  your  Bank,  as  a  matter  of 
precaution,  will  be  apt  to  take  it  in  the  end  to  the  bank 
which  has  shewn  most  strength  during  the  crisis. 

But  whatever  steps  it  may  be  necessary  to  take,  you 
must  not  hesitate  for  a  moment  at  any  sacrifice  needful 
for  the  safety  of  the  Bank^ — not  the  sacrifice  of  your 
Consols  at  any  price,  nor  the  loss  of  half  your  business, 
if  need  be;  because  no  effort  must  be  spared,  within 
reach  of  human  accomplishment,  whatever  the  cost  may 
be,  to  avoid  the  catastrophe  of  a  stoppage. 

The  working  of  a  bank,  then,  on  an  inadequate 
reserve,  might  bring  it,  under  conceivable  circumstances, 
within  the  range  of  consequences,  weighed  against 
which,  the  profit  arising  from  such  a  course  of  working 
would  be  as  dust  in  the  balance. 

The  principle  is  liable  to  the  further  objection  that  it 
will  deprive  your  arrangements  with  your  customers  of 
that  quality  of  fixity  which  they  ought  to  have  ;  and 
on  which  your  constituents,  with  fair  shew  of  reason, 
have  a  right  to  rely.  You  cannot  work  a  bank  with 
justice  to  them,  or  advantage  to  yourself,  on  the  hand- 
to-mouth  principle.  Your  reserve  ought  always  to  be 
sufficiently  ample  to  meet,  not  only  all  ordinary,  but 
all  exceptional  demands  upon  it,  without  disturbing 
existing  arrangements. 

You  must  give  yourself  elbow-room  in   the   govern- 


LET.  XXIX.  1  Banking  Finance,  215 

ment  of  your  finances.  To  be  all  liberality  at  one  time, 
and  to  be  putting  on  the  screw  all  round  at  another,  is  a 
system  of  management  which  may  deprive  you  of  some 
of  your  best  accounts,  but  is  not  calculated  to  attract 
fresh  ones. 

When  a  man  in  business  finds  himself  in  search  of  a 
banker,  he  will  naturally  give  the  preference  to  the 
strongest  bank  ;  because,  if  he  is  a  borrower,  it  is  of 
consequence  to  him  that  his  banker  shall  always  be 
able,  panic  or  no  panic,  to  afford  him  his  usual  monetary 
facilities.  On  the  other  hand,  if  he  is  a  lender,  the  bank 
with  the  strongest  balance-sheet  will  be  the  most  likely 
to  commend  itself  to  his  choice. 

In  evidence  of  this,  I  have  before  me  the  returns  for 
ten  years  of  four  English  joint  stock  country  banks,  each 
having  nearly  the  same  amount  of  Capital  and  Rest. 

It  has  been  the  usage  of  two  of  these  to  work  on  an 
average  reserve  of  1 5  per  cent. ;  and  their  deposits 
shew  an  increase,  for  the  ten  years,  of  45  per  cent,  on 
their  previous  amount.  The  other  two  have  worked 
on  an  average  reserve  of  30  per  cent.,  and  their  de- 
posits shew  an  increase  of  80  per  cent,  on  their  previous 
amount. 

Now  if  these  last  named  Banks  had  worked  on  a  basis 
of  15  per  cent.,  that  would  have  released  to  them 
;i^6cx),ooo  of  their  reserves  for  more  profitable  employ- 
ment ;  which,  on  the  basis  of  our  former  estimate,  would 
have  brought  them  in  an  extra  profit  of  £6000  a  year. 
But  in  that  case,  the  increase  in  their  deposits,  other 
things  being  equal,  would  have  been  less  than  it  actually 
was  by  ;^i,200,cxx).  In  gaining  ;^6ooo  a  year,  there- 
fore, by  working  on  a  small  reserve,  they  would  have 
failed  to  acquire  fresh  business  bringing  them  in  £12,000 
a  year. 

Other  influences,  no  doubt,  besides  the  relative  strength 
of  balance-sheets  and  reserves,  may  have  had  the  effect 
of  attracting  depositors  more  or  less  to  one  bank  or  the 
other ;  but  making  all  allowance  for  this,  it  is  at  least  a 
reasonable  proposition,  that  the  immediate  gain  which 


2i6  The  Country  Banker,  t"T.  xxix. 

may  arise  from  working  on  a  small  reserve,  may  in  the 
long  run  be  largely  outbalanced,  in  mere  pounds  shillings 
and  pence,  by  working  upon  a  large  one. 

There  is  one  other  point  from  which  to  regard  the 
question  of  your  reserve.  We  have  seen  that  the 
nominal  resu.\t  of  your  working  on  the  smaller  one 
would  be  an  apparent  increase  to  your  profits  of  ;^35oo 
a  year.  This  would  enable  you  to  increase  your  dividend 
from  15  to  16  per  cent,  with  ;^50O  over,  but  this  would 
have  to  cover  your  risk  of  loss  on  a  discount  business 
of  ;^i, 500,000  a  year. 

But  one  per  cent,  additional  dividend  per  annum,  at 
the  cost  of  normal  financial  weakness,  intermittent 
anxieties,  and  constant  working  at  high  pressure,  would 
surely  be  a  dearly  bought  advantage,  even  if  it  had  no 
other  drawbacks } 

Let  no  suggestion,  then,  from  shareholders  too  eager 
for  dividend,  tempt  you  to  snatch  a  precarious  profit 
and  a  fleeting  popularity,  by  working  on  an  inadequate 
reserve.  The  safety  and  steady  progress  of  the  Bank 
stand  far  in  front  of  all  other  considerations,  and  must 
never  be  put  in  jeopardy,  whatever  the  effect  on  your 
dividend  may  be.  Better  fifteen  per  cent,  and  safety, 
than  twenty  per  cent,  and  danger. 

The  present  market  value  of  your  share  capital  is 
;^900,ooo.  What  if  a  movement  upon  your  deposits 
should  overtake  you  with  an  insufficient  reserve,  amidst 
all  the  unreason  and  terror  of  a  panic,  and  you  have 
to  stop  payment?  The  one  per  cent,  which  you 
may  have  added  to  dividend  by  working  on  a  small 
reserve,  will  be  a  conscience-smiting  set-off  to  a  shrink- 
age in  the  price  of  your  shares  from  nine  hundred 
thousand  pounds  to  nothing,  in  a  day.  Even  if,  after 
paying  off  your  deposits  and  other  liabilities,  you  had  still 
your  Capital  and  Rest  intact,  and  were  able,  out  of  these, 
eventually  to  pay  back  £\  5  per  share  to  your  proprietors, 
the  loss  to  them  would  still  be  a  calamitous  one.  Prior 
to  the  stoppage,  the  market  price  of  the  shares  was  £10. 
There  would  consequently  be  a  loss  of  ;^I5  per  share. 


LET.  XXIX.]  Banking  Finance.  217 

or  ;^45o,ooo  in  all.  In  other  words,  the  goodwill  of  your 
business,  which  this  sum  would  represent,  will  have 
vanished  into  air.  To  have  put  in  peril  a  business 
bringing  in  £  50,000  a  year,  for  the  paltry  sake  of  an 
additional  ;^350o,  would  be  a  startling  illustration  ot 
what  it  is  in  the  finance  of  banking  to  be  penny  wise 
and  pound  foolish. 


A  Reserve  of  One-third.  Let  us  now  consider 
the  effects  of  the  withdrawal  of  10  per  cent,  or  ;^ 250,000 
of  your  deposits,  should  you  decide  to  work  the  Bank 
on  the  basis  of  a  reserve  of  one-third,  as  set  forth  in 
our  balance-sheet,  viz.  : 

Cash  in  hand    .         .         .  £200,000 

Cash  at  call,  etc 350,000 

Consols    .        .        .        .        .        300,000 


In  all  ;^  8  50,000 

You  would  of  course  meet  the  withdrawals  as  they 
arose,  out  of  your  moneys  at  call  and  short  notice  ;  be- 
cause these  moneys  have  been  thus  set  apart  expressly 
to  provide  against  unusual  demands. 

You  would  take  this  course,  for  the  further  reason  that 
it  would  enable  you  to  meet  the  drain,  without  having 
to  press  any  of  your  customers  for  a  reduction  of  their 
advances,  or  a  limitation  of  their  discounts,  at  a  time 
when  such  pressure  might  be  a  serious  inconvenience 
and  loss  to  them. 

By  this  abstention  you  will  secure  not  only  their  good 
will,  but  their  good  word,  which  may  not  be  without  its 
value  even  in  the  near  future. 

The  Bank  whose  customers  can  proclaim,  that  their 
usual  facilities  were  extended  to  them  without  grudge  or 
abatement,  throughout  the  money  pressure,  will  clearly 
have  a  better  chance  of  enlarging  its  constituency,  than 
the  Bank  which  has  earned  for  itself  the  reputation  of 
having  sacrificed  a  score  or  two  of  its  clients  to  save 


2i8  The  Cmmtry  Banker.  [let.xxix. 

itself.  The  fact  that  you  have  met  the  demands  upon 
you  at  all  points  with  ease  and  equanimity,  and  that 
you  have  not  recalled  a  single  overdraft,  or  refused  the 
discount  of  a  single  good  bill,  will  have  the  further  effect 
of  bringing  back  to  you  the  deposits  which  have  been 
withdrawn  from  you  under  the  influence  of  fear ;  and 
may  possibly  attract  to  your  exchequer  not  a  few  of 
those  which  have  been  taken  from  your  weaker  neigh- 
bours, if  you  have  any. 

After  the  cessation  of  the  drain,  your  liabilities,  as 
reduced  thereby,  would  stand  thus  : — 

To  depositors,  etc .        .        .    ;^  2, 300,000 
Capital  and  Rest        .        .     .         450,000 


;^2,75o,ooo 


whilst  your  assets  would  stand   as   shewn  in  the  first 
column  of  the  statement  following. 

But  if  we  are  to  apportion  your  assets  on  the  basis 
adopted  in  the  construction  of  your  balance-sheet,  they 
will  have  to  be  gradually  brought  to  the  figures  of  the 
second  column. 


Reserve 

£ 

£ 

Cash  in  hand    . 

.    200,000 

200,000 

Cash  at  call . 

.    100,000 

266,000 

Consols    . 

.    300,000 

300,000 

600,000 

766,000 

Advances     . 

.    960,000 

910,000 

Bills  of  Exchange 

.  1,190,000 

1,074,000 

2,750,000     2,750,000 

Your  advances  at  present,  it  will  be  seen,  are 
;^  50,000,  and  your  bills  ;^  116,000  in  excess  of  limit,  and 
must  be  reduced  accordingly,  in  order  to  restore  your 
reserve  to  its  normal  amount,  of  which  it  is  exactly  the 
sum  of  these  two  items  short,  namely,  £  166,000. 


I 


I 


LET.  XXIX.]  Banking  Finance,  219 

But  it  may  not  be  necessary  to  take  steps  to  enforce 
this  readjustment.  The  back-flow  of  your  deposits, 
enlarged  possibly  by  affluents  from  other  sources,  may 
of  itself  gradually  restore  your  finances  to  their  former 
equipoise,  without  your  having  to  disturb  a  single  profit- 
able account,  or  the  discount  limit  of  any  good  client. 

If  this  shall  prove  too  sanguine  a  view,  your  large 
reserve  will  at  least  have  given  you  this  point  of  vantage 
— it  will  have  given  you  time  :  so  that  if  you  find  that 
reductions  have,  after  all,  to  be  made  in  overdrafts  and 
discounts,  you  will  not  have  been  driven  to  applying 
the  knife  summarily  to  some  of  your  best  accounts. 
You  will  be  able  to  await  the  result  of  that  operation 
on  certain  of  your  discounts  and  advances,  which  you 
may  not  be  disinclined  to  curtail  in  any  case. 

In  what  amounts  the  resources  of  an  English  Country 
Bank,  like  the  District  Union,  with  its  thirty  Branches, 
ought  to  be  apportioned  to  reserve,  overdrafts,  and  bills 
of  exchange,  is  necessarily  a  matter  of  opinion,  which  will 
be  governed  to  some  extent  in  each  case  by  surround- 
ing circumstances. 

But  whatever  limit  you  do  assign  to  these  great  heads 
of  account,  you  must  be  prepared  for  a  daily  tendency 
in  your  actual  figures  to  deviate  from  them.  Your 
ideal  balance  sheet — that  is,  the  statement  of  how  your 
resources  ought  to  stand, — has,  therefore,  to  be  recon- 
structed every  time  your  books  are  balanced,  if  you 
would  have  a  continual  and  exact  knowledge  of  the 
deviations  from  standard  of  the  appointed  totals  of  your 
resources.  But  it  is  not  necessary,  neither  would  it  be 
expedient,  to  proceed  at  once  to  rectify  every  divergence 
as  it  arises  betwixt  your  actual  and  ideal  position  ; 
because  in  the  ordinary  course  of  things  such  deviations 
.will  frequently  rectify  themselves.  An  excess  of  dis- 
counts one  week,  may  be  balanced  by  a  decrease  in  the 
next.  An  overplus  in  your  cash  one  day  may  be  more 
than  absorbed  the  following  day.  Heavy  withdrawals  on 
some  accounts  may  be  coincident  with  heavy  lodgments 
on  others.     So  long,  therefore,  as  your  figures  exhibit 


220  The  Country  Banker^  [lrt.  xxix. 

only  a  limited  range  of  departure  from  standard,  you  will 
properly  abstain  from  interference,  and  allow  them  to 
right  themselves  if  they  will.  But  if  you  find  the  total 
of  your  overdrawn  accounts,  let  us  say,  shewing  a 
steady  increase  week  by  week,  with  an  obvious  tendency 
to  stand  permanently  in  excess  of  the  limit  which  you 
have  assigned  to  them,  you  will  have  to  apply  the  curb 
firmly ;  because  the  celerity  with  which  your  resources 
will  flow  in  this  direction,  if  unchecked,  offers  a  remark- 
able contrast  to  the  tardiness  with  which  they  will  flow 
back  again  when  you  stand  in  need  of  the  money. 

That  is  a  mole-eyed  method  of  banking,  which  looks 
merely  to  the  safety  and  profit  of  proposed  accounts, 
and  accepts  them  accordingly,  without  regard  to  their 
incidence  on  the  financial  position  of  the  Bank.  A 
dividend  thus  inflated  is  not  the  be  all,  although  it  might 
well  become  the  end  all,  of  any  bank.  However  tempting 
in  point  of  gain  offered  transactions  may  be,  a  manager 
has  to  refuse  them,  no  matter  with  what  degree  of 
reluctance,  if  their  adoption  would  have  the  effect  of 
seriously  disturbing  the  regulated  balance  of  his  finances. 


Composition  of  the  Reserve.  We  have  thus  far 
discussed  the  value  and  incidence  of  your  reserve  as  a 
whole.  We  have  still  to  consider  the  question  of  its 
component  parts. 

As  regards  the  cash  in  hand,  which  is  put  at  ;^200,ooo, 
it  represents  8  per  cent,  of  your  deposits.  Some  will 
deem  the  amount  too  small,  but  no  one,  I  think,  will 
look  upon  it  as  excessive.  It  is  intended  to  cover,  and 
will  sufficiently  cover,  under  ordinary  circumstances,  the 
difference  between  your  receipts  and  payments  of  cash 
on  any  one  day. 

The  amount  of  your  cash  in  hand,  moreover,  will  be 
governed  in  some  measure  by  the  next  item — cash  at 
call  and  short  notice,  ;^3  50,000  ;  because  moneys  thus 
placed  can  be  put  into  your  till  practically  by  return 
of  post.     Regarded  in  this  light,  your  cash  virtually  in 


utT.  XXIX. J  Banking  Finance,  221 

hand  amounts  to  ;^  5  50,000,  or  about  23  per  cent,  of 
your  deposits. 

The  cash  in  hand  and  at  call  held  by  loi  joint  stock 
banks  at  31  Dec.  1882,  amounted  to  59  millions,  as 
against  257  millions  of  deposits.*  The  deposits,  there- 
fore, exceeded  the  cash  in  hand  and  at  call  in  the  ratio 
of  4.35  to  I.  Your  position  is  almost  identical  with  this  : 
your  deposits  exceed  your  cash  in  hand  and  at  call  by 
4.36  to  I. 

Your  Consols  are  put  at  ;^  300,000,  and  they  yield 
you  interest  at  a  trifle  over  3  per  cent. ;  but  your 
moneys  in  the  hands  of  the  bill-brokers  will  not  yield 
you  such  a  return.  On  the  average  of  the  last  ten 
years,  the  yield  would  have  been  £2  2s.  Scl.  per 
cent.  Why  not,  therefore,  you  suggest,  put  more  of 
your  reserve  in  Consols  and  less  of  it  at  call  ^  Why 
not  half  a  million  in  Consols,  and  £  1 50,000  with  the 
brokers  ;  and  thus  net  an  additional  income  of  ;^I750  a 
year? 

But  by  thus  reducing  your  money  with  the  brokers 
to  ;^  1 50,000,  you  leave  a  margin  between  you  and  your 
Three  per  cents,  so  Hmited,  that  fluctuations  in  the 
ordinary  movements  of  your  business  might  oblige  you 
to  resort  to  your  Consols  more  frequently  than  would  be 
expedient.  Every  now  and  then  you  might  have  to  buy 
or  sell ;  and  as  a  rule  you  would  have  to  buy  when  money 
was  cheap,  and  sell  when  it  was  dear.  You  would  thus,  for 
the  most  part,  have  to  buy  in  the  dearest,  and  sell  in  the 
cheapest  market  You  might  of  course  avoid  selling,  by 
borrowing  on  your  Consols  ;  but  frequent  borrowing,  or 
selling,  or  buying  had  best  be  avoided.  Do  not  let  the 
adjustment  of  your  finances  render  you  subject  to  the 
fidgets.  Give  yourself  at  all  times  a  sufficient  margin  within 
which  to  work.  This  will  pay  you  better  in  the  long 
run,  than  by  working  things  continually  within  a  hair's 
breadth  of  necessity  and  within  a  stone's  cast  of  danger. 

But  why  Consols,  you  ask,  and  always  Consols  ?  Why 

♦  Economist^  iQth  May,  1883. 


222  The  ,K^ou7itry  Banker,  [l«t.  xxix 

not  invest  a  portion  of  the  reserve  in  other  first-class 
securities  yielding  a  better  return  of  interest  ? 

The  reason  is  this — Consols  stand  unrivalled  and 
alone  in  the  supreme  quality  of  convertibility.^  They 
are  the  one  security  which  you  can,  with  absolute  cer- 
tainty, turn  into  cash  at  any  hour  of  any  business  day 
in  the  worst  throes  of  panic.  You  cannot  rest  assured 
of  this  in  respect  of  any  other  description  of  securities 
— not  even  of  the  British  Government  itself.  Your 
Consols  are  virtually  so  many  Bank  of  England  Notes 
in  a  latent  form,  but  with  this  advantage, — that  they 
yield  you  three  per  cent,  whilst  practically  forming  a 
portion  of  your  till-money. 

Re-discounting.  The  re-discount,  or  sale  of  a  por- 
tion of  its  bills,  is  often  an  important  feature  in  the 
financing  of  an  English  country  bank. 

If  you  sold  ;£'5CX),000  of  your  bills,  you  could  invest 
an  equal  amount  in  fresh  ones  with  the  proceeds,  and,  as 
a  rule,  make  a  profit  on  the  transaction  ;  but  not  always. 
It  would  be  a  reasonable  estimate  to  put  the  profit  on 
such  transactions  at  one  per  cent  per  annum,  or  ;^  5000  a 
year.  But  against  this  you  have  to  set  the  possible  loss 
arising  out  of  the  extra  ;^2,ooo,ooo  in  bills,  which  you 
would  have  to  discount  every  year  in  order  to  realize 
this  profit. 

Even  that  is  a  minor  objection.  Your  liabilities  to  the 
public  already  exceed  your  paid-up  Capital  and  Rest  in 
the  proportion  of  nearly  six  to  one ;  and  it  would  not  be 
desirable  to  add,  by  your  own  act,  half  a  million  to  these 
liabilities,  and  thus  raise  the  disproportion  to  a  higher 
figure. 

The  District  Union  Bank,  as  the  holder  of  so  large  an 
amount  of  deposits,  ought  never  to  be  seen  in  the  re-dis- 
count market  It  ought  to  work  within  its  own  resources. 
Not  to  do  so,  would  be  to  inflate  its  proper  business  be- 
yond its  natural  limits,  and  to  enhance  any  strain  upon  its 
credit  in  adverse  times. 

1  Consols  no  longer  hold  this  unrivalled  position.  It  is  shared  by 
the  various  War  Loans  issued  by  the  British  Government. 


LET.  XXIX.]  Banking  Finance,  223 

But  the  objections  which  apply  to  banks  having  ample 
resources  within  themselves,  do  not  apply  to  banks 
placed  in  districts  of  great  industrial  activity,  where 
deposit  money  is  scarce  and  the  demand  for  loan  capital 
is  great.  There  is  nothing  opposed  to  sound  banking 
principle  in  banks,  thus  placed,  supplementing  their  re- 
sources, by  re-discounting  portions  of  their  bills,  and  thus 
drawing  supplies  from  the  London  market  A  bank,  by 
this  process,  merely  transfers  that  portion  of  its  discount 
business  to  London,  which  is  in  excess  of  its  local  means 
to  meet  it 

This  I  say  is  a  legitimate  branch  of  the  business 
of  such  banks,  provided  the  banks  do  not  allow  it  to 
tempt  them  to  maintain  a  too  limited  reserve  to  meet 
their  other  liabilities.  If  it  be  a  wise  and  necessary 
course  for  a  bank  which  never  re-discounts  a  bill,  to 
maintain  at  all  times  an  ample  reserve  to  meet  any  pos- 
sible demand  upon  its  deposits,  it  cannot  surely  be  less 
incumbent  on  a  re-discounting  bank  to  do  so  ?  If  the 
District  Union  Bank  holds  a  reserve  of  one-third  the 
amount  of  its  deposits,  in  its  present  position  ;  it  would 
surely  not  hold  less  than  a  third,  if  it  should  add  one- 
fifth  to  its  other  liabilities  in  the  form  of  bills  re- 
discounted  ?  The  deposits  of  a  re-discounting  bank 
are  not  less  likely  to  be  drawn  upon  in  times  of 
pressure,  than  those  of  other  banks :  the  same  relative 
adequacy  of  reserve  ought,  therefore,  to  be  held  against 
them. 

It  will  go  against  the  grain,  no  doubt,  when  a 
Manager  finds  himself  obliged  at  times  to  replenish  his 
money  at  call  by  re-discounting  bills,  at  a  percentage 
considerably  beyond  what  the  proceeds  when  thus  placed 
will  yield  him ;  but  he  must  accustom  himself  to  face 
this  form  of  depletion  with  Spartan  endurance,  and  to 
meet  any  suggestion  to  the  contrary,  come  from  what 
quarter  it  may,  with  inflexible  resistance.  The  re-dis- 
counting bank  which  should  disregard  the  principle  of 
maintaining  at  all  times  a  sufficient  reserve,  and  rely 
exclusively  on   re-discounts  to  replenish  its  till  when 


2?4  '^^^  Counlry  Banker,  [lbt.  xxix. 

necessary,  would  become  virtually  beholden  to  the  good- 
will and  ability  of  its  London  agents  or  bill-brokers 
to  carry  it  through  the  first  monetary  crisis. 

The  Bank  which  should  rest  its  financing  on  so  narrow 
a  plank  as  this,  would  manifestly  place  itself  within 
measurable  range  of  disaster ;  because  it  is  no  disparage- 
ment to  London  banks  or  London  bill-brokers  to  imagine 
a  time,  in  the  monetary  vicissitudes  of  the  future,  in 
which  they  might  be  unable  to  afford  it  the  assistance 
required.  There  has  been  a  time,  within  living  memory, 
when  you  could  not  discount  even  an  Exchequer  Bill  of 
the  English  Government  in  all  Lombard  Street.* 

The  danger  of  the  situation  to  such  a  bank  will  be 
seriously  enhanced,  if  its  London  agents  and  brokers 
already  hold  as  much  as  they  care  to  hold  of  its  indorse- 
ments, in  the  existing  condition  of  the  money  market. 
And  another  danger  may  lie  in  this — the  choicest  bills 
of  the  bank  may  be  already  under  re-discount.  Its  port- 
folio may  have  been  denuded  of  all,  except  bills  of  a 
quality  which  would  only  pass  muster  in  ordinary  times. 
When  most  in  need  of  bills  of  supreme  quality,  it  may 
have  none  of  them  to  carry  it  through  the  Black  Friday 
of  the  future,  should  that  evil  day  ever  come  again. 

Let  us  hope  that  it  never  may;  but  that  the  Bank 
which  has  placed  itself  in  a  position  so  full  of  peril  may, 
nevertheless,  be  pulled  through  somehow,  and  the  very 
worst  avoided.  In  this  event,  the  anguish  of  mind  which 
its  Directors  and  Manager  will  have  passed  through, 
during  the  terrible  march  of  the  crisis,  will  have  revealed 
to  them,  with  an  emphasis  to  be  remembered,  the  sicken- 
ing possibilities  which  may  attend  the  working  of  any 
bank  on  an  inadequate  Reserve. 


♦  The  late  Mr.  Masterman  made  this  statement  in  the  House  of  Com- 
mons, in  October,  1847  ;  and  the  Act  of  1844,  to  the  best  of  my  recollection, 
was  suspended  the  following  day. 


LETTER    XXX. 

ADVANCES. 

//  is  certain  that  the  greatest  part  of  trade  is  driven  by  young 
merchants  upon  borrotuing  at  interest ;  so  as  if  the  usurer  either 
call  in  or  keep  back  his  money ^  there  will  ensue  presently  a  great 
stand  of  trade.  Bacon. 

Under  the  heading  of  Advances,  in  your  balance- 
sheet,  are  included  overdrawn  accounts,  temporary  and 
special  advances,  and,  to  avoid  detail,  various  minor 
heads  of  account ;  but  for  all  purposes  of  argument,  it 
will  suffice  to  treat  the  whole  as  consisting  of  overdrafts 
and  advances. 

The  limit  we  assigned  to  these  was  ;^ 960,000,  and  was 
thus  arrived  at : — 


Paid  up  Capital  and  Rest         ,    ;^45o,ooo 
20  per  cent  of  Deposits,  etc     .       510,000 


;^  960,000 


The  figures  are  purely  arbitrary,  as  were  those  on 
which  we  based  the  other  apportionments  of  your  assets. 
Whether  they  represent  the  exact  quota  of  your  resources 
which  may  with  prudence  be  thus  employed,  is  a  point 
on  which  opinions  will  differ, —  some  will  think  the 
proportion  too  restricted ;  others  will  regard  it  as  over- 
liberal. 

The  usage  of  London  banks  in  this  matter  necessarily 
differs  from  that  of  the  provinces,  because  metropolitan 


226  The  Country  Banker.  [let.  xxx. 

deposits  are  subject  to  greater  fluctuations  than  those  of 
country  banks  :  a  London  bank  must,  therefore,  retain  a 
larger  relative  proportion  of  its  resources  in  living  forms 
of  asset.  The  deposits  in  country  banks  consist,  for  the 
greater  part,  of  the  savings  of  quiet  country  people  ;  who 
do  not  trouble  their  heads,  as  we  have  seen,  about  the 
state  of  the  foreign  exchanges,  the  reserve  of  bullion,  or 
the  ups  and  downs  of  the  money  and  share  markets. 
They  are  not  of  a  speculative  turn.  In  the  management 
of  their  banking  affairs  they  are  rather  restful  than 
fidgety,  and  will  at  times  leave  their  deposits  for  years 
undisturbed,  except  for  the  accretion  of  fresh  savings  or 
accrued  interest.  They  know  that  the  money  is  at  their 
command,  principal  and  interest,  in  full,  at  any  time 
when  wanted  ;  they  are  therefore  content  to  let  it  rest 
at  a  moderate  rate  of  interest,  until  a  good  mortgage 
offers  itself,  or  a  tempting  bit  of  property  comes  on  the 
market. 

No  doubt  there  are  varieties  of  provincial  depositors 
to  which  this  pastoral  sketch  will  not  apply.  There 
are  portions  of  country  deposits,  especially  in  the 
larger  towns  and  cities,  which  are  as  restless  and 
fugitive  as  those  of  the  metropolis ; — nevertheless,  the 
dominant  feature  of  provincial  deposits  is  a  limited 
range  of  fluctuation  and  consequent  steadiness  of  total. 

It  is  this  stability  in  the  general  mass  of  their  deposits, 
which  enables  country  banks  to  employ  a  considerable 
percentage  of  them  in  advances  on  overdrawn  accounts  ; 
but  this  percentage  will  be  governed,  to  some  extent, 
by  the  nature  of  the  advances.  Many  of  these,  no 
doubt,  will  be  as  fixed  in  character  as  your  Bank 
buildings  or  your  oflfice  fittings,  and  therefore  equally 
unavailable  for  the  payment  of  deposits.  At  the  same 
time,  these  permanent  overdrafts  are  your  most  lucrative 
form  of  account ;  and  they  will  always  be  the  last  which 
you  will  seek  to  disturb,  so  long  as  they  continue 
within  their  appointed  limit  in  the  marshalling  of  your 
assets. 

On  the  other  hand,  your  temporary  advances  on  first- 


LET.  XXX.]  Advances,  227 

class  railway  stock,  or  on  produce  warrants,  or  other 
marketable  securities,  are  only  second,  in  a  financial 
point  of  view,  to  bills  of  exchange  themselves.  You 
cannot,  it  is  true,  re-discount  such  advances  and 
turn  them  into  money  at  any  moment ;  but  they  will 
turn  themselves  into  money,  when  due,  equally  with 
paper  of  the  first  quality.  They  will  afford  you 
the  principal  means  wherewith  to  maintain  the 
equilibrium  of  your  finances  with  least  friction ;  be- 
cause, being  impersonal  advances, — loans  based  more 
upon  the  value  of  the  security  than  on  the  respon- 
sibility of  the  borrowers,  and  made  at  the  lowest  rate 
of  interest  to  which  the  market  can  be  pressed  down, 
— you  have  no  hesitation  in  regulating  the  amount 
of  such  loans  in  absolute  accordance  with  the  re- 
quirements of  your  own  business.  In  these  and  other 
forms  of  temporary  advance,  you  have  a  quasi  Reserve, 
of  which  you  can  avail  yourself  at  any  time,  in  whole  or 
in  part,  without  scruple  and  without  offence.  When  the 
demands  upon  you  for  more  lucrative  forms  of  advance 
or  in  payment  of  deposits  increase  in  volume,  you  allow 
your  railway  and  other  forms  of  temporary  loan  to  run 
off  in  a  corresponding  ratio :  when  these  demands  slacken 
and  the  money  comes  back,  the  outflow  of  your  resources 
towards  such  temporary  employment  will  re-commence. 
The  principle  will  be  well-nigh  self-acting,  like  the  ball- 
cock  in  a  cistern. 


Bank  Credits.  Certain  of  your  customers  import 
produce  from  foreign  parts,  for  which,  in  some  countries, 
they  have  to  pay  before  shipment.  The  seller  abroad 
will  not  part  with  his  commodity  before  he  has  value 
received,  in  money  or  its  equivalent.  This  is  provided 
by  the  importer  sending  the  seller  your  letter  of  credit, 
which  authorizes  him  to  draw  upon  your  Bank  up  to  a 
certain  indicated  amount ;  or,  an  importer  may  prefer 
your  other  form  of  credit,  which  gives  authority  to  firm* 

Q  2 


228  The  Country  Banker.  [let.  xxx. 

abroad  to  draw  upon  the  Bank  '  against  documents ' — 
that  is  to  say,  for  the  invoice  amount  of  certain  indi- 
cated goods,  produce,  or  commodities,  at  specified  limits 
of  price,  which  are  not  to  be  exceeded. 

The  risks  run  in  the  issue  of  credits  chiefly  depend 
upon  the  arrangements  which  you  make  with  the  parties 
to  whom  they  are  granted.  You  are  bound  to  accept 
the  drafts  drawn  upon  you  by  virtue  of  these  documents 
when  they  are  presented  for  acceptance,  if  the  drafts  are 
in  order, — whatever  may  have  happened  to  your  cus- 
tomers in  the  meantime.  From  the  date,  therefore,  on 
which  you  issue  a  credit  to  a  customer,  he  becomes 
indebted  to  you  for  whatever  sums  may  be  drawn  upon 
you  under  it. 

If  the  Credit  is  for  a  specific  amount,  you  must  regard 
that  amount  as  so  much  advanced  to  the  customer 
on  overdraft,  and  deal  with  it  accordingly.  The 
fact  that  you  may  not  be  called  upon  to  pay  the 
money  for  months — possibly  not  at  all — does  not  alter 
the  fact,  that  you  have  undertaken  a  responsibility 
which  you  may  have  to  face,  and  against  which  you  have 
to  protect  yourself  the  moment  it  begins  to  run. 

If  the  Credit  is  for  an  indefinite  amount ;  that  is 
to  say,  if  the  bills  drawn  under  it  are  limited  to  the 
value  of  certain  produce  or  commodities  at  indicated 
prices,  you  will  no  doubt  see  that  your  customer 
provides  you  with  a  margin,  in  cash  or  convertible 
securities,  which  will  be  amply  sufficient  to  cover  all 
contingencies. 

There  are  persons  of  good  judgment,  who  look  upon 
this  description  of  transaction,  as  being  the  business  rather 
of  a  mercantile  house  than  a  country  bank.  It  involves 
certain  obvious  risks ;  it  enlarges  the  volume  of  your 
liabilities ;  it  requires  special  mercantile  knowledge  to 
conduct  it  with  safety ;  and  even  with  the  best  of  know- 
ledge, you  will  hardly  escape  collision  on  disputed  points 
and  an  occasional  law-suit.  Moreover,  the  rate  of 
commission  has  now  become  attenuated  to  a  point  that 
renders  the   business  barely  worth  the  doing,   except 


LET.  XXX.]  Advajices,  229 

with  customers  who  have  other  claims  upon  you,  and  to 
whom  you  cannot  refuse  this  form  of  accommodation 
when  they  require  it. 

To  revert  briefly  to  your  advances  as  a  whole  :  the 
question  remains — Will  it  be  prudent  to  lock  up  20  per 
cent,  of  your  deposits,  in  addition  to  your  paid-up  Capital 
and  Rest,  in  this  form  of  banking  asset, — the  remaining 
80  per  cent,  of  your  deposits  being  represented  by  cash, 
Consols  and  bills  of  exchange  ? 

It  is  a  question  of  usage  and  expediency.  We  have 
already  discussed  the  advantages  which  accrue  to  a 
bank  from  a  strong  balance-sheet.  We  have  seen,  on 
the  other  hand,  that  profits  derived  from  an  over-invest- 
ment of  its  deposits  are  often  delusive,  and  more  than 
lost,  in  the  long  run,  by  collateral  disadvantage  and 
danger.  Against  profits  thus  earned,  you  have  to  place 
the  profits  that  *  might  have  been ' — profits  arising 
from  that  increase  of  business  which  a  strong  balance- 
sheet  is  calculated  to  attract,  and  a  weak  one  to 
repel. 

And  you  have  also  to  keep  in  view  that  the  sum 
of  your  commitments  in  the  direction  of  authorized 
overdrafts  is  not  merely  what  your  debtors  owe  you 
at  the  moment,  but  what  they  might  owe  you,  if  they 
should  avail  themselves  of  their  limits  of  overdraft 
to  the  full.  It  is  improbable  that  all  your  over- 
drawn accounts  will  at  any  time  stand  at  the  extreme 
range  of  their  limits  ;  but  it  is  more  than  probable 
that  your  accounts  will  make  a  nearer  general  approach 
to  that  position  in  a  time  of  pressure,  than  in  a  time  of 
ease. 

But  whatsoever  limit  you  decide  to  adopt  as  the 
maximum  of  your  overdrawn  accounts,  it  will  be  well  to 
keep  in  mind  that  on  one  side  of  it  lies  safety,  and  or 
the  other  the  path  to  danger.  There  is  no  channel  into 
which  your  funds  will  flow  with  greater  alacrity,  if  they 
are  not  watched  with  care  and  checked  by  the  strong 
hand.    The  overdrafts  of  a  bank  bear  some  such  tela- 


230  The  Country  Banker,  [let.  xxx. 

tion  to  its  stability,  as  dead-weight  in  cargo  bears  to  the 
sea-worthiness  of  a  ship.  Your  overdrafts  constitute 
your  financial  dead-weight :  admit  too  much  on  board, 
and  thus  get  below  your  load-line,  and  you  will  find  the 
Bank  labouring  heavily  the  first  time  you  have  to  face 
a  head  sea  of  discredit. 


LETTER   XXXI. 

ADVANCES    TO    SHAREHOLDERS. 

A  great  pmrt  of  the  proprietors  when  they  paid  in  their  first 
instalments^  opened  a  cash  account  with  the  Banky  and  the 
Directors  ....  allowed  many  of  them  to  borrow  upon 
this  ccuh  account^  when  they  paid  in  upon  all  their  subsequent 
instalments.  Such  payments  therefore  only  put  into  one  coffer 
what  had  a  moment  before  been  taken  out  of  another. 

Wealth  of  Nations. 

You  have  a  primary  lien  on  the  shares  of  your  Bank 
by  your  Deed  of  Settlement.  In  case  of  need,  you  can 
hold  them  as  against  all  other  creditors,  until  your 
advance  upon  them,  principal,  interest  and  costs,  is  paid 
in  full.  Your  ;^  10  shares  sell  with  steadiness  in  the  open 
market  at  ;^30  each,  and  you  take  them  at  that  price  as 
cover  for  advances. 

But  even  in  the  case  of  London  and  North  Western 
Stock  you  require  a  margin,  when  you  make  an  advance 
against  it.  If  so,  why  omit  a  similar  precaution  when 
you  make  advances  on  the  security  of  your  own  shares  ? 
Moreover,  the  price  of  its  shares,  however  sound  a  bank 
may  be,  is  subject  to  swift  and  serious  depression  in 
periods  of  distrust  or  panic.  The  shares  of  many  of  the 
soundest  banks  in  the  Kingdom  went  down  in  a  few 
weeks,  in  the  scare  of  1878,  some  30  to  40  per  cent.  An 
equivalent  drop  in  the  price  of  your  shares,  would  bring 
them  to  ;f  20,  and  leave  your  margin  33  per  cent,  on 
the  wrong  side ; — for  every  j^3000  advanced  against  the 
shares,  your  security  would  have  shrunk  to  ;^2000. 

It  is  no  answer  to  this  objection,  to  plead  that  no  such 
drop  in  your  shares  did  or  ever  will  take  place.    We 


232  The  Country  Banker.  [let.  xxxt 

are  not  as  yet  in  sight  of  the  millennium  of  finance,  nor 
the  perpetual  repose  of  bank  deposits  ;  and  the  course 
of  panic  is  capricious. 

The  storm  passed  high  over  the  heads  of  the  smaller 
joint  stock  banks  in  1878  ;  but  it  does  not  follow  that  the 
next  disturbance  in  our  monetary  atmosphere  will  take 
the  same  direction. 

Moreover,  the  true  value  of  its  own  shares  to  a  bank, 
is  not  their  current  price  in  the  market,  but  their  in- 
trinsic value — that  is,  the  amount  which  your  paid-up 
capital  and  rest  would  yield  per  share,  if  rateably  divided 
amongst  your  proprietors. 

There  are  30,000  of  your  shares,  and  your  capital 
and  rest  amount  to  ;^45o,ooo.  The  intrinsic  value 
of  each  of  your  shares  is  therefore  ;6^i5  ;  or  about 
half  the  value  at  which  you  take  them  as  a  security  for 
advances. 

Now,  if  a  bank  shall  make  it  a  part  of  its  business  to 
allow  advances  on  its  own  shares  at  market  price, 
looking  to  them  as  its  sole  and  sufficient  security,  and 
without  regard  to  the  responsibility  of  the  borrower,  it 
must  happen  in  time,  that  a  portion  of  its  capital  will  be 
held  by  people  of  inadequate  means. 

What  this  portion  may  attain  to,  will  depend  upon 
circumstances.  It  may  never  exceed  a  small  percentage, 
or  it  may  reach  a  large  one.  But  let  us  take  a  moderate 
figure,  and  say  that  5  per  cent,  of  its  capital,  or  1500  of 
its  shares,  shall  come  to  be  held,  in  process  of  time,  by 
persons  who  are  indebted  to  the  Bank  to  the  full  market 
value  of  their  holdings,— ;^30  a  share, — and  have  no  other 
means  or  property  to  fall  back  upon. 

Let  us,  then,  imagine  that  by  reason  of  frequent 
losses,  an  unprofitable  and  decaying  business,  or  any 
other  cause,  you  decide  to  wind  up.  In  that  event  one 
half  of  the  ;^45,ooo  which  you  may  have  advanced 
without  other  security  to  the  impecunious  amongst  your 
proprietary,  would  become  a  dead  loss. 

It  may  be  about  an  even  chance,  as  you  protest,  that 
the  skies  shall  fall,  as  that  anything  can  ever  lead  to  the 


LET.  XXXI.]        Advances  to  Shareholders.  233 

winding  up  of  the  District  Union  Bank ;  and  the  con- 
tingency is  sufficiently  remote,  with  such  a  balance-sheet 
as  yours,  to  render  it  an  unimportant  factor  in  your 
meditations.  But  the  contingency  is  one,  nevertheless, 
which  cannot  be  altogether  ignored,  in  any  view  of  the 
matter  which  shall  claim  to  be  exact,  and  to  embrace  all 
eventualities. 

It  has  further  to  be  observed,  that  the  man  who  owes 
his  bank  the  full  market  value  of  his  shares  in  it  is, 
strictly  speaking,  only  a  shareholder  in  name.  The 
Bank  has  virtually  provided  him  with  the  means  where- 
with to  purchase  the  shares,  and  they  are  pledged  to  it 
to  their  full  market  price.  The  shares,  it  is  true,  stand 
in  his  name,  and  he  is  entitled  in  right  of  them  to  attend 
all  meetings  of  shareholders  and  to  carry  himself  thereat, 
in  all  respects,  as  if  he  were  an  independent  shareholder 
and  did  not  owe  the  Bank  a  shilling. 

But,  apart  from  the  obvious  objections  to  shareholders 
of  this  type,  there  are  others  of  equal  gravity.  No  one 
ought  to  become  a  shareholder  in  a  bank,  unless  he  is  in 
a  position,  not  only  to  pay  for  his  shares  with  his  own 
money,  but  also  to  meet,  from  the  saAie  source,  whatever 
calls  may  at  any  time  be  made  upon  them. 

Your  Directors  have  the  power  to  make  this  an 
indispensable  condition  of  proprietorship :  they  are  em- 
powered by  your  Deed  of  Settlement  to  reject,  as  a 
shareholder,  anyone  of  whom  they  do  not  approve. 

The  proprietary  of  a  bank,  were  they  thousands  in 
number,  are  merely  a  huge  business  firm,  and  ought  to 
have  the  same  liberty  of  choice  which  any  private  firm 
has,  in  the  selection  of  fresh  partners.  This  privilege  of 
choice  they  delegate  to  their  Directors  ;  and  if  it  is  not 
exercised,  portions  of  the  stock  may  gradually  drift  into 
the  hands  of  persons  of  insufficient  substance — with  the 
results  which  we  have  just  indicated. 

It  does  not  follow  that  those  of  your  shareholders,  who 
require  to  borrow  money,  must  therefore  be  driven  from 
your  doors  to  seek  for  it  elsewhere.  It  only  follows  that 
they  ought  to  cover  the  money  borrowed,  by  security 


234  T^^  Country  Banker,  [let.  xxxa 

other  than  their  bank  shares ;  or  that  they  should  be 
safe  beyond  all  question  for  the  loans  without  security 
at  all. 

But  even  shareholders  of  means,  or  supposed  means,  do 
fail  occasionally,  and  their  shares  become  forfeit  to  the 
Bank.  When  this  happens,  the  shares  ought  to  be  sold 
with  the  least  possible  delay ;  because,  so  long  as  they 
remain  unsold,  they  are  simply  a  cancelment  of  that 
portion  of  your  capital  which  they  represent.  The  Bank, 
for  the  moment,  has  absorbed  a  portion  of  its  own 
substance. 


LETTER    XXXII. 

LARGE    ACCOUNTS. 

^Vhen  you  are  indebted  any  great  sum,  your  creditor  observes 
you  with  no  less  regard  than  if  he  were  bound  to  you  for  some 
huge  benefit,  and  will  quake  to  give  you  the  least  cause  of  offence, 
lest  he  lose  his  money.  Ben  Jonson. 

In  your  preliminary  enquiry  into  the  position  of  your 
overdrawn  accounts,  you  will  no  doubt  take  special  note 
of  those,  if  there  are  any  such,  which  are  largely  in 
excess  of  the  average  of  your  individual  advances.  I 
say,  if  there  are  any  such,  because  it  is  to  be  desired  that 
your  Bank  may  have  no  such  untoward  burdens  to  carry, 
as  a  few  huge  accounts,  absorbing  a  large  portion  of  its 
capital,  and  uncovered,  or  imperfectly  covered,  by 
security.  Every  bank  failure  which  has  happened  during 
the  last  forty  years,  has  been  brought  about  by  reason 
of  facilities  of  scandalous  extent  granted  to  three  or  four 
favoured  accounts. 

I  have  before  me  some  particulars,  taken  from  the 
detailed  balance-sheet  of  a  bank,  with  a  paid-up  capital 
of  a  million  and  a  magnificent  connection,  which  failed 
in  1857.  Three-fourths  of  its  business  were  as  sound  as 
a  banking  business  could  be ;  but  the  other  fourth  was 
represented  by  a  few  accounts,  which  absorbed  amongst 
them  a  million  and  a  half  of  money,  in  advances  and 
discounts  which  were  well-nigh  worthless.  A  powerful 
bank  was  thus  brought  to  the  ground,  and  a  business 
worth  £70,000  a  year  scattered  to  the  winds. 

The  balance-sheet  of  another  bank,  which  failed  in 
1866,  reveals  the  same  story :  a  large  paid-up  capital  and 
a  valuable  connection  ;  more  than  half  its  business  ol 
first-rate  excellence  ;  the  remainder  as  bad  as  it  was  in 


236  The  Country  Banker,  [let.  xxxn. 

..       • 

the  capacity  of  foolish  men  to  make  it.  Its  large  capital, 
and  half  as  much  again,  were  swallowed  up  in  a  few 
monstrous  accounts,  with  the  usual  result — a  final  break- 
down and  utter  wreck  of  an  institution,  which,  under 
sane  management,  had  before  it  a  long  career  of  useful- 
ness and  prosperity. 

The  figures  now  quoted,  however,  although  sufficiently 
startling,  were  terribly  surpassed  by  those  of  Overend, 
Gurney  &  Co.  The  Black  Friday  of  1866  was  signalized 
by  a  failure  which,  for  a  time,  stood  alone  in  its  bad 
eminence  amongst  the  calamities  of  banking.  The  lowest 
deep  in  banking  disaster,  it  was  felt,  had  been  reached  at 
last.  It  was  held  to  be  beyond  belief,  that  a  noble  business 
could  ever  again  be  wrecked  by  such  high-handed  incom- 
petency, and  millions  of  money  cast  away  with  such  dis- 
astrous prodigality.  But  the  bursting  up  of  the  City  of 
Glasgow  Bank  dissipated  these  complacencies  as  with 
a  thunderclap.  The  losses  of  Overend,  Gurney  &  Co. 
were  enormous,  but  they  stood  eclipsed  in  the  awful 
shadow  of  the  other  failure.  Shameful  as  were  some 
of  the  figures  of  the  great  discount  house,  they  failed 
to  reach  the  altitude  of  five  millions  of  loss  on  four 
accounts. 

If  it  be  asked  how  such  evils  arise  and  are  developed, 
the  answer  is  not  far  to  seek — they  arise  from  trans- 
actions entered  upon,  either  in  sheer  ignorance  or  in 
reckless  violation  of  the  fundamental  principles  of 
banking ;  and  once  entered  upon,  they  develop  them- 
selves with  fatal  swiftness  of  growth. 

If  the  Directors  and  Managers  who  are  accountable 
for  these  things,  had  controlled  their  advances  on  the 
commonplace  principles  followed  by  you  at  Oxborough, 
such  overwhelming  loss  to  shareholders  and  shame  and 
scandal  to  British  banking  would  never  have  arisen. 
When  you  assume  the  management  in  chief,  therefore, 
of  the  District  Union  Bank,  the  homely  ways  of  banking 
which  you  have  followed  in  Oxborough  with  success,  will 
be  found  of  equal  soundness  if  practised  at  head- 
quarters, although  you  may  have  to  apply  them  on  a 


LET.  xxxii.]  Large  Accounts,  237 

larger  scale.  But  let  the  largeness  of  the  scale  be  always 
wiSiin  the  limits  of  moderation,  and  let  your  face  be 
resolutely  set  against  '  big  accounts/  no  matter  how 
large  the  apparent  profit  on  them  may  be,  unless  you 
are  covered  in  every  case  by  sufficient  and  immediately 
convertible  security. 

No  doubt  there  are  firms  in  England,  to  whom  it 
would  be  as  safe  to  advance  without  security;^  100,000,  as 
it  would  be  to  advance  ;^  1000  to  others.  Nevertheless, 
for  the  District  Union,  or  any  other  Bank,  to  advance  a 
third  of  its  capital  on  any  one  account,  w  ithout  immedi- 
ately convertible  security,  would  under  any  circumstances 
be  an  act  of  financial  temerity,  which  might  place  its 
management  some  day  on  the  same  platform  with  those 
developments  of  banking,  the  outcome  of  which  the 
nation  has  more  than  once  beheld  with  shame  and 
resentment. 

Even  if  covered  by  convertible  securities,  the  amount 
would  be  dangerously  large.  If  the  borrower  should 
stop  payment  in  a  time  of  monetary  pressure,  when 
failures  most  abound,  and  when  the  public  appetite  for 
evil  report  is  at  its  highest  capacity  of  absorption,  the 
result  might  be  seriously  detrimental  to  the  credit  of 
your  Bank.  Even  if  after  many  days  you  get  your 
money  back  again,  a  doubt  will  have  been  engendered 
as  to  the  prudence  of  your  management,  which  may 
not  be  without  its  effect  on  the  future  of  your  business. 
The  putting  of  too  many  eggs  in  one  basket,  has  a 
homely  significance  even  in  the  ordering  of  a  banking 
business. 

With  such  a  capital  as  yours,  it  would  be  more  ex- 
pedient to  lay  ;^  100,000  out  in  a  hundred  advances  of 
;^I000  each,  than  in  a  block  to  one  huge  borrower.  For 
one  reason,  the  risk  would  be  less.  It  is  better  to  have 
a  hundred  men  liable  for  a  given  sum,  than  only  one 
man.  Even  if  you  select  your  smaller  borrowers  so  badly, 
that  a  score  of  them  shall  collapse  during  the  course  of 
the  first  commercial  crisis ;  these  petty  failures,  com- 
pared  with  the   smashing  up   of   your   big  customer, 


238  The  Country  Banker,  [let.  xxxii. 

would  be  as  the  rattle  of  musketry  to  the  explosion  of 
a  shell. 

And  there  is  another  argument  in  favour  of  the  smaller 
class  of  accounts.  They  pay  better.  The  turn-over  on 
such  accounts  is  relatively  greater  than  on  large  ones. 
The  capital  of  the  shopkeeper  is  turned  over  more 
frequently  than  that  of  the  merchant.  A  business  which 
involves  large  transactions,  at  long  dates,  in  distant  lands, 
is  easily  distanced  in  the  matter  of  turn-over,  by  one  con- 
ducted on  the  principle  of  the  *  nimble  penny.' 

And  there  is  yet  another  consideration.  You  are  less 
liable  to  be  'drawn  in,*  when  the  account  is  of  moderate 
amount.  When  a  client,  whose  overdraft  is  already 
up  to  its  limit,  comes  to  you  on  the  third  of  the 
month,  and.  threatens  that  unless  you  assist  him  with  a 
further  advance  without  security,  to  meet  his  acceptances 
for  the  morrow,  he  must  suspend  his  payments  ;  I 
conclude  that  you  will  refuse  to  be  thus  *  cornered.* 
You  will  prefer  to  stand  where  you  are.  You  will  decline 
to  furnish  him  with  a  fresh  grant  of  the  Bank's  money, 
in  order  that  he  may  pay  certain  creditors  in  full,  and 
leave  the  Bank  by  so  much  further  in  the  lurch. 

But  when  the  great  Anglo-Indian  house  of  Synkheim 
Brothers,  with  a  capital  of  a  million,  'as  everybody 
knows,'  and  on  the  strength  of  which  they  are  already 
in  debt  to  their  bankers  a  tenth  part  of  that  amount ;  I 
say,  when  these  gentlemen  come  to  their  bankers,  with 
a  list  of  their  acceptances  for  the  month,  amounting,  let 
us  say,  to  some  fifty  thousand  pounds,  the  case  is 
different.  It  ought  not  to  be,  but  unhappily  it  is  so.  The 
Brothers  Synkheim  represent  to  the  Bank  Manager  that 
their  shipments  of  Manchester  and  other  goods  to  the 
East  have  been  unusually  large,  and  the  markets  for  their 
sale  unusually  adverse ;  and  that,  in  consequence,  their 
remittances  by  the  present  mail  will  not  suffice,  without 
a  further  temporary  advance  from  the  Bank,  to  provide 
for  their  acceptances  now  becoming  due. 

The  Manager,  awed  by  the  presence  of  the  members 
of  a  firm  worth  a  million  of  money,  summons  courage, 


LET.  XXXII.]  Large  Accounts,  139 

nevertheless,  to  murmur  something  about  security.  This 
the  firm  would  cheerfully  give ;  but,  as  it  happens,  the 
whole  of  their  resources  at  the  present  moment  are  un- 
fortunately at  the  other  side  of  the  globe. 

We  all  know  what  has  too  often  happened;  the 
extra  advance  will  be  conceded,  and  the  power  of  the 
Bank  to  resist  further  involvement  by  so  much  impaired. 
A  bank  can  make  its  mind  up,  without  serious  effort, 
to  face  the  loss  of  a  thousand  or  two ;  but  no  bank  can 
regard,  without  dismay,  the  possible  stoppage  of  a  house 
owing  it  £\QOfyoo,  It  would  be  infinitely  better  for  all 
concerned,  as  a  rule,  to  let  the  house  go  down  at  once — 
even  if  it  should  carry  the  Bank  with  it,  rather  than  put 
at  risk  another  pound. 

But  this  has  not  been  the  usage  always.  On  the 
contrary,  we  find  that  in  too  many  cases,  a  few  large 
accounts  are  allowed  to  grow  to  abnormal  figures,  until 
a  point  is  reached  when  the  borrowers  become  masters 
of  the  Bank,  and  they  and  it  drive  blindly  on  to  mutual 
perdition. 

You  put  the  question — Are  such  culpable  perversions 
of  banking  principle  possible  in  the  future  ?  Will  credit 
ever  again  be  shattered,  or  the  public  conscience  out- 
raged, by  a  second  Overend  &  Co.,  or  another  City  of 
Glasgow  Bank  }  I  think  the  question  may  confidently 
be  answered  in  the  negative. 

For  one  reason,^  nearly  every  joint  stock  bank  in 
the  three  Kingdoms  is  now  bound  to  publish  at  least 
once  a  year,  in  the  words  of  the  Act,  '  a  full  and  fair 
balance-sheet,  properly  drawn  up,'  and  that  balance-sheet 
has  to  be  signed  and  certified  by  three  of  its  Directors 
and  its  Manager  as  true,  under  penalties  which  few 
gentlemen  will  care  to  face,  if  it  prove  to  be  false. 
If   they   have    put    their    signatures   to    a   deliberate 

1  Joint  stock  banks  now  have  to  publish  annually '  a  balance-sheet 
.  .  .  properly  drawn  up  so  as  to  exhibit  a  true  and  correct  view  of 
the  state  of  the  comF>any's  affairs  according  to  the  best  of  their  *  (the 
auditors')  '  information  and  the  explanations  given  to  them,  and  as 
shown  by  the  books  of  the  company'  (Companies  (Consolidation) 
Act,  1908,  section  113  (&) ). 


240  The  Country  Banker.  [let.  xxxii. 

mis-statement,  the  shame  and  the  punishment  will  now 
be  sure  and  swift. 

But,  in  addition  to  the  testimony  of  the  Directors  and 
Managers/  there  will  henceforth  be  required  a  declaration 
on  the  face  of  every  balance-sheet,  signed  by  indepen- 
dent auditors,  that  it  affords  *a  true  and  correct  view 
of  the  Company's  affairs  as  shown  by  the  Books  of 
the  Company.'  I  hold  this  certificate  to  be  of  more 
importance  in  some  respects  even  than  that  of  the 
Directors  themselves,  without  thought  of  disparagement 
to  them. 

In  the  first  place,  in  nearly  every  case,  it  will  be  the 
declaration  of  men  whose  training  for  life  has  been  the 
analysis  of  accounts  and  the  science  of  book-keeping. 
In  the  methods  of  research  which  are  necessary  to  a 
responsible  audit,  they  will  be  experts,  whom  no  sleight 
of  hand  in  double-entry  or  fraudulent  arithmetic  will 
serve  to  hoodwink  for  a  moment. 

In  the  second  place,  the  testimony  of  a  public  auditor 
is  disinterested.  He  has  no  object  to  serve  in  deceiving 
the  public,  or  the  shareholders,  as  to  the  actual  position 
of  the  Bank.  His  interest  is  to  tell  the  truth,  come 
what  may. 

Lastly,  the  auditor  is  not  appointed  by  the  Direc- 
tors. He  is  chosen  annually  by  the  shareholders,  and 
his  remuneration  is  fixed  by  them.  He  is  not 
therefore  a  creature  of  the  Board ;  it  can  neither  influ- 
ence nor  dismiss  him.  He  is  virtually  the  detective 
of  the  shareholders, — chosen  by  them  to  keep  an 
eye  upon  the  Directors, — not  necessarily  an  eye  of 
doubt  or  suspicion,  but  to  test  and  verify  their  annual 
statement  of  facts,  and  make  assurance  of  their  figures 
doubly  sure. 

The  public  will  therefore  know  that  the  balance-sheets 

^  The  balance-sheet  must  be  signed,  on  behalf  of  the  board,  by 
two  of  the  directors,  or,  if  there  is  only  one  director,  by  that  director, 
but,  in  the  case  of  a  banking  company  registered  after  the  1 5th  August, 
1879,  the  balance-sheet  must  be  signed  by  the  secretary  or  manager, 
and,  where  there  are  more  than  three  directors,  by  at  least  three  of 
those  directors,  and  where  there  are  not  more  than  three  directors,  by 
all  the  directors  (Companies  (Consolidation)  Act,  1908,  section  113 
(3)  and  (5)  ). 


tET.  xxxn.]  Large  Accounts,  241 

of  the  future,  as  published  by  the  banks,  must,  at  least, 
be  in  arithmetical  unison  with  their  books.  Had  this 
been  seen  to  by  independent  auditors,  in  the  case  of  the 
City  of  Glasgow  Bank,  its  calamitous  career  would  have 
been  cut  short  years  before  the  final  crash  came,  and 
with  a  saving  of  millions  to  its  shareholders. 

It  is  not  to  be  imagined  that  wholesale  falsification  of 
the  books  and  accounts  of  the  Bank  could  have  passed 
the  ordeal  of  periodical  audit,  without  detection,  for  a 
series  of  years.  No  jugglery  in  double-entry  could  have 
concealed  from  qualified  auditors,  the  knowledge  that 
the  notes  of  the  Bank  in  circulation  were  understated  in 
its  balance  sheet  by  ;£"!  53,000,  its  deposits  by  ;^696,ooo, 
and  its  acceptances  by  ;^  1,2 5  9,000.  Neither  could  it 
have  escaped  the  densest  capacity  that  the  cash  in 
hand,  which  actually  amounted  to  ;^4 18,000,  was  put  in 
the  balance-sheet  at  ;^ 845 ,000.  Even  on  the  assump- 
tion that  there  had  been  no  tampering  with  the  books, 
but  that  they  were  in  absolute  accordance  with  the 
figures  of  the  balance-sheet,  the  fact  that  over  five 
millions  sterling — more  than  half  the  entire  funds  of  the 
Bank — were  absorbed  in  the  accounts  of  three  of  its 
debtors,  and  ranked  as  good  assets,  would  surely  have 
put  the  least  observant  of  auditors  upon  inquiry,  before 
putting  their  signatures  to  a  balance-sheet  which  covered 
such  astounding  items  ?  ♦ 

You  express  a  fear  that  the  value  of  compulsory 
audit  may  nevertheless  be  overrated.  You  say  that  the 
auditor  never  lived  who  could  appraise,  or  put  a  trust- 
worthy value  upon,  the  multifarious  assets  of  a  Bank. 
You  hold  that  he  would  find  himself  *  bogged  ' 
amongst  the  Bowdlers  and  Titsons,  the  Bargoods  and 
Wheelers  of  Oxborough,  before  he  had  well  entered  upon 
his  valuation  of  the  bills  and  overdrafts  at  that  branch 
alone — to  say  nothing  of  tlie  legions  of  bills,  overdrafts, 
and  advances,  which  would  await  him  at  your  Head 
Office  and  at  your  nine-and-twenty  branches  as  well. 
You  further  submit  that,  long  before  such  an  impossible 

*  Report  of  the  Investigators,  Messrs.  Kerr  Anderson,  Muir,  and  Main, 
fa  Bankers^  Magazine  for  November,  1878. 


242  The  Country  Banker,         [lit.  xxxn. 

audit,  were  it  ever  attempted,  could  be  brought  to  a 
finish,  more  than  half  the  advances  would  have  become 
obsolete  by  repayment,  whilst  a  whole  generation  of  bills 
would  have  run  off,  and  been  succeeded  by  a  fresh  one ; 
so  that,  by  the  time  the  auditor  could  present  his  report, 
it  would  be  an  appraisement,  for  the  most  part,  of  assets 
which  had  ceased  to  exist. 

But  no  such  appraisement  has  been  suggested  ;  be- 
cause it  would  be  as  superfluous  as  it  would  be  futile. 
It  is  not  the  everyday  run  of  its  bills,  overdrafts, 
advances  or  investments,  which  bring  a  bank  into 
trouble.  Bad  debts  will  come  to  it  from  these  sources, 
no  doubt,  with  sufficient  frequency,  but  not  in  over- 
whelming aggregates.  It  is  the  abnormal  entangle- 
ments of  a  bank,  as  we  have  seen, — its  two  or  three,  or 
even  its  one  huge  and  overmastering  account,  if  it  has 
one,  which  brings  a  bank  into  difficulties  and  sometimes 
to  destruction.  That  is  the  skeleton  in  its  closet — the 
Black  Care  which  sits  behind  its  Manager.  Let  us  hope 
that  your  Bank  may  never  find  itself  in  possession  ot 
one.  But  if  unhappily  it  should  ever  drift  into  such  an 
inheritance,  you  will  do  wisely  to  take  early  counsel 
with  your  auditors  in  respect  of  it,  because  the  spectre 
cannot  be  locked  out  of  sight  in  your  cash  vaults, 
neither  can  you  give  it  substance,  if  it  has  none,  by  any 
cunning  of  figures. 

No  doubt  there  will  be  banking  losses  and  banking 
failures  in  time  to  come,  if  the  lessons  of  the  past  be 
slighted  or  forgotten,  and  the  laws  of  prudent  banking 
set  aside.  But  the  '  fierce  light '  of  the  inevitable  audit 
will  render  it  impossible  for  the  Board  of  any  Bank,  by 
collusive  arithmetic,  secretly  to  nurse  enormous  and  ever- 
growing accounts,  year  after  year,  long  after  they  have 
become  more  than  doubtful,  without  even  a  suspicion  of 
the  truth  reaching  the  ears  of  its  shareholders,  until  they 
find  the  Bank  itself  going  down  with  ttlem.  A  second 
edition  of  the  City  of  Glasgow  Bank,  therefore,  even  on 
a  reduced  scale,  is  henceforth  beyond  the  range  of  prob- 
ability. 


LETTER    XXXIII. 
BILLS    OF    EXCHANGE. 

Amongst  many  roses  some  thistles  grow,  some  bad  weeds  and 
enomtitieSy  which  much  disturb  the  peace  of  this  body  politick, 
eclipse  the  honour  and  glory  of  it,  fit  to  be  rooted  out  and  with  all 
speed  to  be  reformed.  Anatomy  of  Melancholy. 

The  bill  of  exchange  is  the  highest  form  of  banking 
security.  As  such,  it  even  excels  Consols,  in  one 
respect ; — its  principal  sum  is  not  subject  to  deprecia- 
tion ;  it  will  be  paid  in  full  when  it  reaches  maturity ; 
whereas  an  equal  sum  invested  in  Consols  would  yield 
on  realization  simply  the  price  of  the  day.  The  price 
may  have  advanced,  it  is  true,  but  it  is  equally  possible 
that  it  may  have  receded.  A  bill,  moreover,  is  unsur- 
passed in  facility  of  transfer.  The  mere  signature  of  the 
indorser  transfers  all  property  in  the  instrument  to  you 
as  effectually,  as  if  the  transfer  were  embodied  in  a 
conveyance  of  the  regulation  length  on  lawyers*  vellum. 

If  the  first  bill  of  exchange  had  been  framed  by  a 
leading  conveyancer,  reduced  to  shape  in  a  committee  of 
the  whole  House,  and  had  suffered  periodical  amend- 
ment at  the  hands  of  the  Legislature  ever  since,  it 
becomes  a  curious  speculation  what  complexity  of  form 
and  measure  of  length  this  simplest  of  documents  would 
have  attained  by  this  time.  Fortunately  for  the  com- 
mercial interests  of  the  human  race,  it  has  escaped  this 
ordeal,  and  remains  to  us  an  instrument  altogether 
matchless  in  brevity  of  form,  facility  of  transfer  and 
simplicity  of  title.  There  is  no  difficulty  in  settling  the 
title  to  a  bill  of  exchange.  You  have  but  to  assure 
yourself  that  the  indorser  is  none  other  than  himself 
and   the   point  is  settled.     And   you   can  with   equal 


244  1^^  Country  Banker.         (let.  xxxm. 

promptness  and  ease  render  the  document  inalienable, 
except  by  your  own  act  and  deed,  by  the  simple  pro- 
cess of  specially  indorsing  it  to  the  Bank,  whereby  you 
render  it  useless  plunder  to  a  thief. 

At  a  previous  stage  of  this  correspondence,  we  sought 
to  analyse  the  class  of  bills  which  you  would  chiefly 
meet  with,  in  a  quiet  country  town  like  Oxborough. 

We  have  now  to  glance  at  the  varieties  of  paper  with 
which  you  may  have  to  deal,  in  the  populous  and  busy 
commercial  town  where  your  Bank  has  its  head-quarters, 
when  you  come  to  rule  as  its  Manager  in  chief. 

In  the  first  order  of  merit,  come  bills  bearing  the 
names  of  banks  or  banking  houses,  as  drawers,  accep- 
tors or  indorsers,  together  with  other  names  of  high 
standing.  These  bills  stand  A  i  in  the  estimation  of 
the  discount  market,  and  the  fanciful  speak  of  them  as 
gilt-edged.  Then  we  have  '  remittance  paper '  —  bills 
drawn  by  houses  abroad  on  banks,  or  correspondents  in 
England.  Then  comes  '  inland  drawn  *  paper  —  bills 
drawn  by  the  shippers  of  goods  on  the  agents  in 
England  of  the  houses  abroad,  to  whom  the  goods  are 
shipped.  Anon  we  come  upon  brokers*  paper — bills 
drawn  by  importers  against  commodities  placed  in 
brokers'  hands  for  sale.  Then  we  reach  the  immense 
class  of  bills  arising  out  of  our  manifold  trades  and 
industries,  which  pass  under  the  term  of  *  trade  paper:  * 
and  finally,  we  have  a  nondescript  class,  of  limited 
amount,  consisting  of  promissory  notes  or  loan-bills ; 
such  as  those  of  Bowdler  on  Starkey,  and  the  like. 

Your  largest  holding  of  paper  will,  no  doubt,  consist 
of  trade  bills,  the  features  of  which  we  discussed  at  length 
in  a  former  letter,  and  of  which  we  took  for  an  average 
sample  the  draft  of  Cartridge  on  Booker  &  Co. 

Next  in  probable  amount  will  come  your  holding  of 
'brokers'  bills,' — a  description  of  paper  unknown  to 
Oxborough — drawn  by  the  owner  of  produce  upon  the 
broker  in  whose  hands  he  has  placed  it  for  sale.     The 


LET.  xxxiii.j  Bills  of  Exchange,  245 

bill  is  usually  accompanied  by  the  written  undertaking 
of  the  broker  to  apply  the  proceeds  of  the  merchandise 
in  payment  of  the  bill,  and  to  hold  the  produce  mean- 
while duly  insured  against  fire.  When  this  undertaking  is 
supplemented  by  a  warehouse  warrant,  shewing  that  the 
merchandise  has  been  transferred  into  the  name  of  the 
Bank,  no  safer  transaction  could  well  be  offered  you. 

But  the  legal  transfer  of  the  property  into  the  name 
of  the  Bank  is  indispensable,  if  absolute  security  \s  to 
be  insured.  If  this  is  not  done,  neither  the  owner  nor 
the  Bank  has  control  over  the  produce  or  commodity 
advanced  upon.  In  that  respect  they  have  to  trust 
entirely  to  the  integrity  of  the  broker.  It  is  rarely  that 
this  trust  is  abused,  but  it  has  been  in  certain  flagrant 
instances  ;  and  this  kind  of  malversation  will  always  be 
a  possibility,  where  the  transaction  is  not  fortified  by  a 
warehouse-warrant  in  the  name  of  the  Bank. 

It  is  difficult  to  understand  why  this  should  not  be 
done  in  every  case,  on  principle  ;  unless  we  are  to  concede 
that  the  borrower  of  money  has  a  greater  claim  to  be 
the  holder  of  the  commodity  borrowed  upon,  than  the 
Bank  which  lends  the  money  ;  a  contention  which  is 
clearly  untenable,  not  to  say  ridiculous.  By  all  laws  of 
reason  and  business  usage,  the  lender  of  money  is  held 
to  be  the  natural  holder  of  the  property  advanced 
upon. 

You  question  whether  leading  brokers  will  take  this 
view  of  the  matter.  If  so,  all  that  need  be  said  is,  so 
much  the  worse  for  the  leading  brokers ;  because  they 
will  thus  divert  such  business  into  the  hands  of  less  sub- 
stantial people,  who  will  not  be  deterred  by  sentimental 
scruples  from  giving  business  validity  to  business 
transactions. 

With  respect  to  bills  drawn,  indorsed,  or  accepted  by 
banks,  at  home  or  abroad,  of  undoubted  means  and 
stability,  and  bearing  other  names  of  high  standing, 
there  will  be  no  difficulty  of  selection.  They  will  turn 
into  bank  notes  of  their  own  accord,  as  they  fall  due,  and 


246  The  Country  Banker,         [let.  xxxm. 

you  will  be  without  a  care  or  anxiety  in  respect  of 
them. 

Bills  drawn  by  houses  abroad  on  their  correspondents 
in  England  against  actual  shipments  of  merchandise  to 
this  country,  and  known  to  banks  and  bill-brokers  as 
remittance  paper,  are  frequently  drawn  upon  banks  or 
houses  of  the  highest  mercantile  standing,  and  are  in 
high  repute  and  favour  in  the  discount  market. 

As  between  this  class  of  bills,  and  those  drawn  by 
Englisli  shippers  on  the  agents  in  England  of  houses  in 
India,  China,  or  elsewhere  abroad,  there  is  this  difference  : 
in  the  case  of  remittance  paper,  the  bills  are  drawn 
against  value  on  its  way  to  this  country ;  in  the  other, 
the  bills  are  drawn  against  value  which  is  leaving  this 
country  for  distant  parts  of  the  globe.  A  bill  drawn 
against  value  which  will  be  in  hand  before  the  bill  falls 
due,  obviously  rests  on  a  different  basis  from  a  bill 
drawn  against  commodities  which,  at  the  maturity  of  the 
bill,  are  being  realized  in  the  distant  markets  of  the 
East  or  West. 

It  may  chance,  however,  unless  due  caution  has  been 
exercised  by  your  predecessor  in  office,  that  bills  are  to 
be  found  in  your  portfolio  which  do  not  come  strictly 
within  any  of  the  above  definitions.  We  have  seen  that 
even  in  quiet  humdrum  Oxborough,  bills  may  be  fabri- 
cated and  set  afloat  against  values  purely  fictitious. 

But  bills  may  be  drawn  against  values  only  too 
ponderous.  Bills,  for  example,  are  sometimes  drawn 
against  ships  or  steamers  in  the  course  of  construction. 
Where  the  acceptor  is  a  man  of  suflficient  means  him- 
self, or  where  he  has  an  '  ownery '  for  the  vessels,  from 
whom  he  is  able  to  collect  the  money  needful  to  meet 
the  bills  as  they  mature,  there  is  little  to  be  said  :  but 
if  his  ownery  is  not  in  hand, — if  it  consists  of  persons  who 
owe  their  existence  for  the  most  part  to  a  hopeful  imagi- 
nation,— he  will  not  be  able  to  meet  his  acceptances  at 
maturity ;  and  if  the  builder  cannot  take  them  up,  the 
bills  will  have  to  be  renewed,  whilst  additional  ones  may 


LET.  XXXIII.]         Bills  of  Exchange,  247 

have  to  be  drawn,  to  provide  the  wherewithal  to  complete 
the  vessel  and  send  her  to  sea. 

What  may  next  happen  is  problematical ;  she  may 
prove  a  lucky  ship,  or  she  may  prove  to  be  the  reverse  : 
but  in  either  event,  the  native  element  of  vessels  thus 
launched  and  sent  to  sea,  is  manifestly  paper.  They 
float  as  much  on  bills  as  on  the  ocean  wave ;  and  the 
outcome  to  the  discounters  of  such  paper — as  witness 
the  experiences  of  Overend,  Gurney  &  Co. — is  frequently 
more  disastrous  than  exhilarating. 

It  is  not  the  province  of  banking  to  discount  bills,  the 
proceeds  of  which  are  to  provide  the  acceptors  with  fixed 
capital.  A  man  may  properly  be  drawn  upon  against 
goods,  produce,  or  commodities  which  he  is  turning  over 
in  his  business  from  day  to  day  ;  but  not  against  his 
buildings  or  machinery.  These  arc  not  floating  capital. 
He  cannot  meet  his  acceptances  with  factories  or 
fixtures,  buildings  or  machinery.  These  represent  his 
fixed  capital,  and  are  provided  by  himself  out  of  his  owe 
means,  or  they  ought  to  be.  In  any  case,  they  are  no 
basis  to  run  bills  of  exchange  upon  ;  neither  are  vessels 
in  course  of  construction,  or  navigating  the  high  seas, 

A  ship-owner,  or  ship's  husband,  may  properly  be 
drawn  upon  for  sails,  or  cordage,  or  stores  supplied  to 
his  ships,  because  there  is  a  tangible  fund  in  his  in- 
coming freights  to  meet  this  class  of  marine  paper  :  but 
when  he  accepts  against  the  hull  of  a  ship,  he  passes  the 
recognized  lim'its  of  negociable  value,  and  his  paper  be- 
comes discredited  in  the  estimation  of  the  bill  market. 


Kite-flying.  We  have  thus  far  dealt  with  bills 
drawn  against  *  value'  actually  given  by  the  drawers 
and  received  by  the  acceptors  of  the  bills ;  although  we 
have  not  found  the  value  of  approved  quality  in  every 
case.  Nevertheless,  we  have  found  a  value  of  some 
kind,  underlying  and  forming  the  basis  of  each  trans- 
action. Every  genuine  bill  of  exchange  is  in  fact  the 
presentment  and  voucher  of  a  mercantile  or  trading 


248  The  Country  Banker.         [let.  xxxm. 

transaction,  which  has  actually  passed  between  the 
parties  to  the  instrument.  But  we  have  yet  to  speak  of 
certain  bills  of  more  nebulous  quality — bills  drawn  and 
accepted  against  values  received  which  have  no  existence 
— bills  which  have  their  origin  and  exclusive  base  in  the 
predatory  instincts  of  their  makers.  You  have  met,  as 
we  have  seen,  with  an  obvious  *  kite  *  or  two  at  Oxbo- 
rough ;  but  the  character  of  this  class  of  bill  is  not 
always  so  apparent :  there  are  diversities  of  kites,  as  of 
other  things. 

When  Mr.  Julius  Webber  tenders  for  discount  his 
draft  on  Wefton  &  Co.,  and  you  already  hold  certain 
drafts  of  theirs  upon  him,  both  being  customers  of  your 
Bank,  and  both  in  the  same  line  of  business,  you  will  not 
only  look  askance  at  the  proffered  transaction,  but  will 
naturally  desire  to  know  the  basis  on  which  the  bills 
already  afloat  are  supposed  to  rest.  You  will  be 
vehemently  assured,  no  doubt,  that  actual  value  has 
passed  in  every  case.  When  Wefton  &  Co.  run  short  of  a 
certain  class  of  goods,  the  friendly  Webber  lets  them  have 
some  of  his,  and  draws  against  them  ;  similarly,  when 
his  stock  requires  *  assortment '  they,  with  equal  courtesy, 
furnish  the  needful  and  draw  upon  him  therefor  with 
equal  promptitude.  Nothing,  they  will  assure  you,  could 
be  more  regular  than  their  drawings  upon  each  other. 

In  a  certain  sense — possibly  not ;  but  when  twj  firms 
in  the  same  trade  take  to  exchanging  goods  with  each 
other,  and  to  drawing  bills  against  the  total  of  each 
exchange,  instead  of  for  the  difference  only,  it  is  manifest 
that  such  bills  have  no  more  real  foundation  to  rest 
upon,  than  if  the  same  bale  of  goods  were  shuttlecocked 
backwards  and  forwards  between  the  parties,  whenso- 
ever either  of  them  was  moved  with  the  desire  to  draw. 

Let  us  suppose  that  Webber  has  bills  running  on 
Wefton  &  Co.  for,  say,  ;^I500,  for  which  he  has  sold  and 
delivered  them  goods  of  equal  value  ;  and  that  Wefton 
&  Co.  have  drafts  running  upon  him  for  a  similar 
amount,  and  for  which  they  have  supplied  him  with 


L«i  XXXIII.]  Bills  of  Exchange,  249 

actual  value  in  goods.  It  is  clear  that  by  these  opera- 
tions they  have  raised  ;£'3000,  without  thereby  adding  a 
shilling  of  value  to  their  respective  stocks  in  trade.  It 
is  further  manifest  that  by  this  financial  hocus-pocus, 
bills  might  be  set  afloat  to  an  amount,  not  merely  equal 
to,  but  largely  in  excess  of  their  combined  stocks 
in  trade, — if  banks  could  be  found  incautious  enough 
to  discount  paper  of  this  light  and  airy  description. 

And  there  are  other  methods  of  kite-flying,  equally 
plausible,  more  difficult  of  detection,  and  only  a  shade 
less  censurable. 

A.  has  imported  a  cargo  of  produce, — value,  say,  £^QQO, 
which  he  sells  to  B.,  who  buys  it  on  speculation,  and 
re-sells  it  also  on  speculation  to  C,  who  disposes  of  it  to 
D.,  a  wholesale  dealer  ;  who  finally  parts  with  it  to  the 
trade,  and  draws  upon  the  smaller  buyers  against  sales. 
Now,  if  bills  are  drawn  at  every  stage  of  the  process,  as 
they  may  easily  be,  a  single  cargo  might  thus  be  used 
as  a  base  to  set  afloat  bills  to  three  or  four  times  its 
value.  The  proceeds  of  each  bill  ought,  in  strictness, 
to  be  applied,  as  soon  as  the  bill  is  drawn,  to  take 
up  and  cancel  the  previous  one ;  but  this  is  not  the 
usage.  As  a  rule.  A.,  B.,  C,  and  D.,  will  prefer  to  have 
;^5000  each  to  play  with  for  a  few  months,  and  their 
respective  bankers  meanwhile  will  be  the  holders  of 
^"20,000  in  bills,  three-fourths  of  which  amount  have 
gone  for  the  time  being  into  other  forms  of  commercial 
speculation. 

There  is  yet  another  description  of  paper  against 
which  you  have  to  be  on  your  guard.  The  drawer  and 
acceptor  of  the  bills  may  both  he  respectable  English 
firms  ;  and  there  may  be  nothing;  on  the  face  of  the  bills 
to  suggest  irregularity.  The  drawer  is  an  importer  of 
the  produce  or  commodity  which  it  is  the  special 
business  of  the  acceptors,  iiis  brokers,  to  deal  in  and 
dispose  of,  and  everything  seems  fair  and  above-board  ; 
until  some  day,  to  your  am:\7.ement,  both  firms  give  way 


250  ^'^^  Country  Banker,         [let.  xxxiii. 

together.  You  then  discover  that  the  bills  were  drawn, 
not  against  produce  or  commodities  in  the  hands  of  the 
acceptors,  but  to  provide  the  drawer  with  means  tc 
make  advances  to  growers  abroad,  in  anticipation  ol 
problematical  crops. 

You  further  find,  that  the  parties  have  been  carrying 
this  speculative  game  on  for  years,  and  that  the  frequent 
result  of  such  trading  has  followed,  and  brought  both 
concerns  to  grief.  You  have  been  an  unconscious  instru- 
ment in  effecting  your  own  heavy  loss,  and  abetting 
them  in  their  own  undoing.  You  have  been  treating 
as  genuine  commercial  paper  a  series  of  flagitious 
kites. 

Your  excuse  is,  that  the  bills  had  every  appearance  oi 
validity.  There  was  respectability  at  both  ends,  and 
probability  in  the  ostensible  transactions ;  but  unhappily 
there  was  a  want  of  candour.  The  bills,  in  every  cascj 
purported  to  be  drawn  as  against  so  much  value  in 
hand  and  not  against  so  much  value  in  expectation, 
Had  they  been  so  drawn,  it  is  needless  to  observe  that 
they  would  never  have  seen  the  inside  of  your  bill- 
case. 

The  polite  moralist  may  draw  a  distinction  betwixt 
the  fabrication  of  bills  of  this  description  and  the  vulgar 
game  of  thimble-rig ;  but  the  banker  who  finds  himeell 
hocussed  by  such  paper  is  apt,  in  his  rage,  to  think  that 
in  dealing  with  a  professed  trickster,  he  would  at  least 
have  the  advantage  of  being  on  his  guard. 

You  ask  how  you  are  to  detect  such  paper  when 
offered }  By  the  simple  process  of  requiring,  as  in  the 
case  of  other  brokers'  paper,  that  the  acceptors  shall 
hypothecate  and  transfer  to  the  Bank  the  commodity 
against  which  the  bills  are  drawn.  By  a  resolute  enforce- 
ment of  this  necessary  condition,  you  will  avoid  being 
the  holders,  henceforth,  of  bills  drawn  against  crops  in 
expectancy  and  values  in  the  air. 

But  if  we  would  know  oiie  of  the  causes  of  recurring 
panic  and  widespread  banking  loss,  we  have  to  look  at 


LBT.  XXXIII.]  Bills  of  Exchange.  251 

methods  of  kite-flying,  practised  at  higher  levels  and  on 
areas  of  wider  range  than  are  accessible  to  the  Webbers 
and  Weftons,  or  the  Bargoods  and  Laxeys  of  trade ;  whose 
offences,  compared  with  those  of  the  larger  practitioners 
of  the  craft,  dwindle  to  petty  larceny. 

More  than  once  during  the  current  half  century,  bills 
have  been  drawn  by  certain  large  houses  of  the  period 
on  each  other,  against  merchandise  purporting  to  be  on 
its  way  either  to  England  or  to  English  houses  abroad, 
to  the  extent  of  millions — merchandise  which  had  no 
existence  beyond  its  fraudulent  inscription  on  the  face 
of  fictitious  bills. 

The  credit  given  to  these  houses  was  not  made 
to  rest  on  the  homely  principles  on  which  banking  at 
Oxborough  is  conducted.  The  credit  given  was  not 
based  upon  an  intimate  knowledge  of  the  parties  them- 
selves, their  habits  of  life,  their  business  capacities,  their 
liabilities  and  their  resources  ;  but  was  accorded  with 
lavish  hand,  in  ignorance  of  these  essential  facts  and 
regardless  of  the  conclusions  to  which  they  might 
point. 

Neither  would  there  seem  to  be  much  ground  for  hope 
that  matters  will  be  different  in  the  future,  so  long  as 
the  engagements  which  any  mercantile  house  may  come 
under,  in  excess  of  its  capital,  are  subject  to  no  law  of 
control,  beyond  what  the  house  may  see  fit  to  impose 
upon  itself.  Limits  are  assigned  to  other  things.  We 
breathe  and  move  in  a  labyrinth  of  legal  and  moral 
restraint ;  but  there  is  no  limit,  in  law  or  equity,  to  the 
most  baleful  expansion  of  commercial  credit.  In  the 
progress  of  each  decade,  it  grows  and  spreads  unseen, 
until  its  presence,  like  the  fire-damp,  becomes  known 
only  by  explosion. 

If  the  paper  of  each  house  were  to  centre  in  any  one 
bank  or  discount  house,  some  limit  might  be  put  to  this 
fertile  source  of  banking  misfortune;  but  this  is  im- 
practicable. Such  paper  is  scattered  throughout  the 
country ;  here  a  little,  there  a  little ;  each  banker 
knowing    how   much   he  himself   holds,   but   knowing 


1 


252  The  Country  Banker,         [let.  xxxm 

nothing  of  the  aggregate  paper  afloat  of  each  house. 
In  this  ignorance,  he  hugs  himself  with  the  belief  that 
his  few  thousands  on  a  house  worth  its  plum,  are  as 
safe  as  the  bank  notes  in  his  till — a  form  of  delusion 
from  which,  every  ten  years  or  so,  he  has  a  rude 
awakening. 

I  protested  five  and  thirty  years  ago,  that  the  then 
recent  losses  on  this  pernicious  brood  of  *  kites,'  were 
sufficient  to  strike  bankers  dumb  —  but  they  would 
appear  to  have  had  the  more  serious  effect  of  striking 
certain  of  our  number  blind.  We  have  lived  to  witness 
developments  of  the  bill  system  of  1847,  and  of  other 
so-called  forms  of  banking,  on  a  scale  of  magnitude,  in 
comparison  with  which  the  figures  of  that  time  shrink 
into  abject  insignificance.  The  practitioners  of  that 
early  period  were  as  pigmies,  compared  with  the  levia- 
than operators  of  a  later  time. 

One  cause,  which  has  rendered  the  manufacture  and 
negociation  of  such  bills  practicable,  still  exists.  The 
intense  competition  for  so-called  high-class  paper  among 
London  and  other  banks  and  discount  houses,  is  still 
such  as  to  enable  any  astute  and  speculative  firm  to 
have  discount  facilities  in  half-a-dozen  different  quarters 
at  the  same  time. 

Now,  one  old-fashioned  rule  of  country  banking  was, 
and  still  is,  to  require  that  a  man  shall  have  only  one 
banker,  and  to  close  his  account  if  it  is  discovered  that 
he  has  two  ;  and  you  will  do  well  to  adhere  in  all  cases 
to  this  prudential  rule  in  respect  oi  your  own  customers 
How  can  you  know,  with  any  approach  to  exactitude, 
what  a  man  is  doing,  or  how  his  affairs  stand,  if  he  is 
transacting  a  portion  of  his  business  elsewhere.^  The 
very  fact  of  his  doing  so  excites  a  suspicion  that  he  has 
some  reason  for  withholding  certain  of  his  operations 
from  your  cognizance.  When  you  lend  him  money, 
and  discount  his  bills,  you  have  a  right  to  know  the 
whole  of  his  banking  transactions ;  otherwise  you  may 
awake  some  day  to  the  knowledge,  that  he  has  been 


irr.  xxxiii.]  Bills  of  Exchange,  253 

availing  himself  of  facilities  elsewhere,  by  means  of 
which  he  has  succeeded  in  efrectually  deluding  you  as  to 
his  real  position. 

And  you  will  find  that  some  of  the  discount  establish- 
ments in  London  afford  such  facilities  to  parties  whom 
they  know  to  be  customers  of  countiy  banks.  Even  with 
money  of  your  Bank  lying  with  them  at  call,  they  hold 
themselves  at  liberty  to  compete  against  you,  with  your 
own  customers,  for  discounts,  at  your  very  doors.  It  is 
not  a  neighbourly  policy,  nor  altogether  a  wise  one ;  it 
is  a  question  whether  it  even  *  pays.'  The  broker  who 
should  practise  this  sort  of  competition  would  have  no 
ground  for  complaint,  if  he  found  the  money  placed 
with  him  at  call  or  short  notice  by  the  bank  competed 
against,  taking  to  itself  wings  to  seek  a  more  friendly 
custodian. 

Would  it  not  be  a  better  way,  even  as  a  question  of 
profit  and  loss,  for  a  London  bill  broker  gradually  to 
limit  the  discount  business  coming  to  him  from  the  pro- 
vinces to  the  bills  of  Country  banks  seeking  re-discount } 
The  same  volume  of  country  paper  would  still  have  to 
seek  London  for  discount ;  but  then,  all  such  paper 
would  reach  the  brokers  through  the  medium  of  bankers 
on  the  spot.  The  broker  would  thus  have  the  assurance 
that  the  bills  had  been  selected  by  those  who  had  un- 
rivalled means  of  judging  of  their  regularity  and  safety; 
and  this  assurance  would  be  substantiated  by  the  indorse- 
ments of  the  banks.  A  broker's  chances  of  loss  on  country 
paper  would  thus  be  reduced  to  vanishing  point.  If 
such  a  policy  were  gradually  adopted — if  London  dis- 
counters of  bills  were  gradually  to  close  the  door  against 
all  country  business,  except  that  coming  to  them  from 
Country  banks,  or  from  provincial  houses  having  no 
local  bankers,  the  '  fast '  firms  of  the  future  would  find 
themselves  pulled  up  by  their  bankers,  long  before 
their  liabilities  could  reach  the  monstrous  figures  of  the 
recent  past. 

By  dealing  direct  with  provincial  customers,  the  dis- 
count   broker    no    doubt  obtains    a  rate   of  discount 


254  ^^  Country  Banker,         [let.  xxxm. 

slightly  in  excess  of  what  he  would  obtain,  if  the  bills 
came  to  him  through  a  Country  bank  and  under  its 
indorsement  But  if  against  the  fractional  advantage 
of  profit  thus  realized  during,  say,  the  last  ten  years, 
were  weighed  the  losses  on  such  transactions  ;  who  can 
doubt  on  which  side  the  balance  of  advantage  would 
incline  ? 

You  ask  how  a  Country  banker,  under  the  existing 
order  of  things,  can  best  guard  himself  against  danger  in 
furnishing  his  bill-case  with  its  necessary  quota  of  first- 
class  paper  ?  You  say  that  if  enquiry  had  been  made 
as  to  the  position  of  any  one  of  the  large  houses  which 
have  failed  during  the  last  quarter  of  a  century,  the 
answer,  up  to  the  very  eve  of  their  failure,  would  in  all 
likelihood  have  been  that  their  credit  was  beyond  ques- 
tion. That  is  true,  and  because  it  is  true,  I  would  sub- 
mit that  a  country  bank  had  best  secure  its  first-class 
paper  through  a  first-rate  discount  house,  and  under 
its  gruarantee.  This  would  render  the  operation  safe 
beyond  the  reach  of  doubt,  and  would  be  doing  by 
the  bill  brokers  as  you  would  have  them  do  by  you ; 
you  would  thus  avoid  meddling  with  their  business,  as 
you  would  have  them  abstain  from  interference  with 
yours. 

Let  us  suppose  that  you  choose  instead,  to  select  your 
first-class  paper  on  the  strength  of  your  own  judgment, 
and  thereby  gain  a  quarter  per  cent,  per  annum  on 
each  transaction.  On  a  bill  for  ;^SCX)0,  having  three 
months  to  run,  your  gain  will  be  ;^3  2s.  6d.y  and  no 
more.  This  will  be  the  extent  of  your  gain,  by  working 
without  the  light  of  a  broker's  experience,  or  the  sub-^ 
stantial  backing  of  his  guarantee.  1 

Let  it  be  the  result  of  a  discount  business  thus  per- 
sonally conducted,  that  the  bill  becomes  a  loss — a  con- 
tingency which  would  not  be  without  precedent — and 
the  gain  of  £i  2s.  6d.  for  the  sake  of  which  you  havcj 
risked  so  much,  will  seem  pitiful  indeed.  Beware  ol 
these  petty  allurenieiits  of  gain,  which  are  as  calculate< 


LET.  3UCXIII.]  Bills  of  Exchange,  255 

to  swallow  dividends  up,  every  now  and  then,  as  to 
enlarge  them.  *  I  was  caught  by  a  morsel,*  was  the 
mournful  reflection  of  the  fish  in  the  adage. 

When  you  have  completed  the  investigation  of  your 
bill-case  and  made  a  synopsis  of  its  contents,  and  would 
know  the  financial  value  of  the  whole, — deduct  from  the 
total,  the  amount  of  your  promissory  notes  and  loan 
bills,  and  all  paper  of  dubious  quality,  if  you  hold  any, 
and  the  difference  will  be  the  result  required.  In  other 
words,  the  amount  remaining  in  your  bill-case,  after  this 
deduction  is  made,  will  represent  the  net  amount  of 
negociable  paper  which  you  hold — that  is  to  say,  the 
total  of  your  bills  available  for  re-discount  in  case  of 
need. 

What  proportion  of  unmarketable  paper  it  may  be 
prudent  for  you  to  hold  at  any  time,  must  be  determined 
by  the  same  laws  which  guide  you  in  fixing  the  limits  of 
your  other  forms  of  asset. 

In  constructing  your  balance-sheet,  we  assumed  that 
the  whole  of  the  ;^  1,190,000  in  bills  of  exchange 
were  of  negociable  quality.  These,  added  to  your 
cash  and  Consols,  represent  a  total  of  readily  avail- 
able resources,  equal  to  80  per  cent,  of  your  deposits — 
a  position  of  undeniable  strength.  But,  if  certain 
of  your  bills  are  not  negociable,  this  percentage  will 
have  to  be  reduced  :  if  you  hold  unmarketable  paper 
to  the  extent  of  say  ;^  300,000,  the  percentage  would 
drop  from  80  to  68 — and  your  financial  barometer 
would  indicate  a  fall  of  12  degrees.  The  amount  you 
hold  of  promissory  notes  or  loan  bills  may,  therefore, 
be  an  important  item,  in  estimating  from  time  to  time 
the  general  strength  of  your  position. 

The  degree  of  that  strength,  it  may  be  well  to  note, 
is  always  to  be  measured  by  the  proportion  which 
your  fusible  assets  bear  to  your  liabilities  to  the 
public.  Your  cash  in  hand  and  at  call  may  be  regarded 
as  assets  in  actual  fusion  :  your  Consols  and  negociable 


25^ 


The  Country  Banker.         [let.  xxxm. 


bills  as  fusible  into  cash  in  a  high  degree ;  your  pro- 
missory notes  and  loan  bills  as  in-fusible,  within  any 
exact  time  ;  and  the  bulk  of  your  overdrafts  as  opposing 
an  obstinate  resistance  to  fusion,  whatever  heat  of  appli- 
cation may  be  brought  to  bear  upon  them. 


LETTER    XXXIV. 

RESERVE     LIABILITY. 

Set  it  doum  to  thyself^  as  well  to  create  good  precedents,  as  to 
^ollow  them.  Reduce  things  to  the  first  institution^  and  observe 
wherein  and  how  they  have  degenerate :  hut  yet  ask  counsel  of 
both  times :  Of  the  ancienter  time  what  is  best ;  Of  the  latter  time 
what  is  fittest.  Bacon. 

The  failure  of  the  City  of  Glasgow  Bank  may  be  said 
to  have  brought  unlimited  liability  in  banking  to  a 
violent  end.  As  the  circle  of  ruin  occasioned  by  the 
catastrophe  widened  in  its  sweep,  from  day  to  day,  the 
consternation  among  shareholders  in  unlimited  banks 
became  intensified.  Men  began  to  ask  themselves, 
whether  it  was  not  an  act  of  insanity,  to  continue  owners 
of  a  description  of  property,  the  holding  of  which  had 
brought  even  wealthy  men  to  the  ground,  and  hundreds 
of  the  well-to-do  to  privation  or  beggary,  with  as  little 
warning  as  an  earthquake  gives. 

The  terror,  as  we  know,  was  exaggerated.  It  was 
proveable  that  there  could  never  again  be  such  a 
lengthened  course  of  falsification,  never  such  a  piling  up 
and  secret  hoarding  of  accumulated  disaster.  Never- 
theless, the  fear  remained.  *  That  which  has  been  is  that 
which  may  be.*  To  the  minds  of  many,  there  appeared 
to  be  no  choice  between  getting  rid  of  their  bank  shares 
at  once,  or  finding  themselves  sucked  down  by  and  by 
in  some  other  banking  maelstrom. 

The  banks  were  thus  threatened  with  the  loss  of  the 
most  cherished  names  amongst  their  proprietaries. 
Men  of  wealth  and  position  would  gradually  sell  out, 


258  The  Country  Banker,        [let.  xxxiv 

and  persons  with  little  substance  and  less  standing 
would  gradually  take  their  places. 

One  would  make  a  struggle  to  meet  a  definite  lia- 
bility, and  might  rely  on  friends  for  assistance ;  but  a 
limitless  debt  appals  the  imagination,  and  breaks  the 
heart  of  effort.  The  victim  will  not  even  look  it  in  the 
face,  but  goes  miserably  under  at  once. 

Unlimited  liability,  it  was  held,  might  thus  become  in 
time  the  mere  shadow  of  itself — a  husk  without  its 
kernel.  The  unlimited  liability  of  a  body  of  share- 
holders of  limited  substance,  would  cease  to  reckon 
for  much,  in  the  event  of  a  breakdown  and  adverse 
liquidation. 

The  question,  therefore,  became  urgent, — was  it 
possible  to  assign  some  limit  to  the  liability  of  share- 
holders, and  yet  make  ample  provision  for  the  security 
of  depositors  ?  If  this  were  feasible,  the  banks  would 
be  able,  not  only  to  retain  then-  proprietaries  intact,  but 
men  of  property  and  influence  would  become  holders  of 
bank  shares,  who  had  never  held  such  shares  before. 
The  solution  of  the  difficulty  was  found  in  the  principle 
of  *  reserve  liability,'  and  was  embodied  in  the  Act  of 
1879. 

The  Act  empowered  every  bank,  with  the  consent  of 
its  shareholders,  to  increase,  if  it  should  see  fit,  the 
nominal  amount  of  each  of  its  shares,  and  thus  enlarge, 
to  any  extent,  the  total  of  its  subscribed  capital — a 
process  which  was  impracticable  as  the  law  then 
stood. 

The  Act  further  empowered  every  bank  which  should 
register  under  it,  whether  with  its  capital  thus  enlarged, 
or  as  its  capital  actually  stood,  to  place  the  whole,  or 
any  portion  of  its  uncalled  amount,  in  the  form  of  reserve 
liability. 

The  Act,  therefore,  enabled  every  bank  which 
adopted  its  provisions,  to  set  aside  and  hypothecate  a 
certain  portion  of  its  registered  capital,  as  an  inalienable 
fund  for  the   protection  of  its  depositors,  in  addition 


J 


LET.  XXXI v.]  Reserve  Liability.  259 

to  the  protection  already  afforded  them  by  its  paid-up 
capital  and  rest. 

A  bank  could  thus  create  for  depositors  a  security 
which  claimed  to  rank  in  substance  and  availability  with 
unlimited  liability  itself — diluted,  as  that  form  of  liability 
might  become,  by  the  defection  of  the  strong  and  the 
infusion  of  the  weak. 

It  became  a  reasonable  proposition,  that  a  liability 
for  a  given  amount,  which  was  limited  but  available, 
might  be  of  larger  yield  than  the  liability  of  a 
deteriorated  proprietary,  which  was  unlimited,  but 
unproductive.  It  was  held  that  a  million,  which  was 
certain  of  collection,  might  prove  a  more  absolute 
security  than  unlimited  millions  of  sterile  liability. 

But  the  Act,  whilst  it  thus  effectually  protects  the 
depositor,  still  further  safe-guards  his  interest  in  other 
ways.  Every  bank,  as  we  have  before  stated,  which 
registers  under  the  Act,  has  to  publish  a  balance-sheet, 
which  shall  set  forth  its  exact  financial  position  at  least 
once  a  year. 

It  has  further  to  submit  the  whole  of  its  books  and 
accounts,  its  money  and  securities,  to  the  investigation 
of  public  auditors,  in  order  that  they  may  certify,  or 
decline  to  certify,  as  the  case  may  be,  to  the  correctness 
of  the  figures  of  the  balance-sheet. 

Every  bank  has,  in  addition,  to  append  to  its  title  the 
word  *  limited.'  In  the  case  of  banks  with  large  capitals 
paid  up  and  rests  in  proportion,  this  precautionary  term 
was  regarded  by  many  as  needless,  and,  to  a  certain  extent, 
misleading.  The  law  required  it  to  be  applied  alike  to  the 
London  and  Westminster  Bank,  with  its  i^  13,000,000  of 
capital  and  rest,  and  the  Bank  of  Swindelhurst,  which 
may  have  started  business  with  a  capital  limited  to  a 
£\o  note,  there  being  no  law  to  the  contrary.  The 
mere  title  of  a  bank,  it  was  urged,  conveys  of  itself  no 
distinctive  idea  to  the  mind  of  a  certain  type  of 
depositor.  A  bank  it  is  a  bank  to  him,  and  it  is  nothing 
more,  as  the  primrose  was  to  Peter  Bell.  But  as 
it  was  open  to  Q\i^xy  bank,   by  way  of  rider. to  the 

s8 


26o  The  Country  Banker,         [let.  xxxiv. 

obnoxious  term,  to  have  imprinted  on  its  documents, 
if  it  should  see  fit,  the  amount  of  its  capital  and  rest ; 
this  special  objection  to  the  limiting  word  was  without 
bottom. 

All  fears,  indeed,  as  to  its  effect  on  the  minds  of 
depositors  have  proved  groundless,  and  have  long  since 
vanished.  To  find  the  word  *  limited '  as  an  appendage 
to  the  title  of  a  bank  is  no  detriment  nowadays  ;  it 
is  rather  held  to  be  a  distinction  and  hall  mark.  It  is 
known  and  recognized  as  an  assurance  that  the  Bank's 
affairs  are  thoroughly  gone  into,  and  truly  set  forth,  at 
least  once  in  every  year. 

No  measure,  perhaps,  ever  had  a  more  critical  time 
in  Parliament,*  or  ever  worked  a  revolution  so  moment- 
ous or  so  swift,  in  the  financial  basis  of  our  banking 
system. 

The  great  principle  of  reserve  liability,  which  it  em 
bodies,  has  been  accepted  on  all  hands,  by  depositors 
and  shareholders  alike,  as  a  wholesome  substitute  and 
reasonable  equivalent  for  unlimited  liability. 

In  evidence  of  this,  I  have  before  me  the  returns  of 
forty  of  the  banks  which  have  registered  under  the 
Act,  and  which  shew  an  increase  of  nearly  ;^  30,000,000, 
or  some  15  per  cent,  in  their  deposits,  since  the  date  of 
registration. 

At  the  date  of  the  passing  of  the  Act,  there  were  in 
the  three  Kingdoms  eighty-two  unlimited  banks,  and  of 
these  seventy-five  have  since  registered  under  the  Act, 
leaving  only  seven  banks  now  unregistered.     But  the 

*  The  session  of  1879  was  within  three  days  of  its  close  before  the  Bill 
had  reached  even  the  stage  of  second  reading,  and  *  reserve  liability,'  as  ex- 
pounded in  the  Bill,  was  still  a  financial  conundrum  to  the  House.  For- 
tunately, a  definition  of  the  principle  was  thought  of  at  the  eleventh  hour, 
and  embodied  in  a  clause,  which  expressed  in  a  few  lines,  what  occupied 
as  many  pages  in  the  print  of  the  Bill.  The  amending  clause  was  frankly 
adopted  by  Sir  Staflford  Northcote,  who  had  charge  of  the  measure  on  be- 
half of  the  Government ;  and,  with  cordial  help  from  both  sides  of  the 
House,  the  Bill  was  rushed  through  the  Commons,  in  time  to  pass  with 
equal  swiftness  through  the  Lords,  and  receive  the  Royal  assent,  literally 
lit  thie  twelfth  hour. 


LET.  XXXIV.]  Reserve  Liability,  261 

banks  which  have  availed  themselves  of  the  Act,  have 
done  so  in  a  wise  and  liberal  spirit.  In  seeking  to  put 
a  limit  to  their  liability,  they  have  so  broadened  the 
basis  on  which  their  credit  stood,  as  to  leave  their 
liability  still  practically  unlimited.  Their  subscribed 
capitals  and  profits  in  rest,  which  in  1879  stood  at 
82  millions,  now  stand  at  i66  millions ;  so  that,  in 
availing  themselves  of  the  Act,  they  created  fresh 
capital  to  the  extent  of  more  than  80  millions,  as 
further  security  to  their  depositors.* 

This  is  the  equivalent  which  the  banks  have  given  for 
limited  liability.  Their  deposits  amount  to  270  millions, 
and  their  resources  to  meet  them  sum  up  in  all  to 
437  millions.  So  much  for  *  limited '  liability  under  the 
Act  of  1879. 

•  llie  following  summary,  which  has  been  chiefly  compiled  from  one  of 
those  interesting  and  valuable  returns  for  which  the  banking  community  is 
so  frequently  indebted  to  the  *  Economist,'  will  give  more  exactly  the 
figures  of  the  movement. 

Position  op  Skventy-five  Banks         In  31  Oct. 

registered  under  the  Act  of  1879.  1879.  1884. 

Capital  paid  up  .        .        .    ;^27,739,ooo  ;^3o>367.ooo 

Capital  to  call       .        .        .     .       40»373>ooo  44,288,000 

Capital  in  reserve  liability .        .  nil.  76,592,000 

;^68,ii2,ooo  ;^i5i,247,ooo 

Rests,  or  reserve  funds  •     •        13,807,000  15,512,000 

;^8i,9i9,ooo  j^i66,759,ooo 

Seven  Unlimited  Banks. 

Paid-up  capital        , ;^i,oi7,ooo 

Reserve  funds    .......  804,000 

^1,821,000 


LETTER    XXXV. 

CAPITAL   AND    SHARES. 

AlbHt  much  of  that  we  are  to  speak  in  this  present  cause  may 
seem  to  a  number  perhaps  tedious^  perhaps  obscure,  and  intricate. 
.  .  .  .  They  unto  whom  we  shall  seem  tedious^  are  in  no 
wise  injuried  by  us^  because  it  is  in  their  own  hands  to  spare  that 
labour  which  they  are  not  willing  to  endure.  Hooker. 

Your  Bank  is  registered  under  the  Act  of  1 879,  with 
a  subscribed  capital  of  ;^  1,200,000,  divided  into  30,000 
shares  of  ;6^40  each,  on  which  ;^  10  have  been  paid  up — 
the  remaining  £^0  per  share,  or  ;^ 900,000  in  all,  having 
been  placed  in  '  reserve  liability.' 

You  have  called  into  existence  this  novel  description 
of  capital,  and  it  will  expressly  exist  for  the  protection 
of  your  depositors,  in  addition  to  the  ;<;45 0,000  of  your 
paid-up  capital  and  rest.  It  will  afford  them  a  guarantee 
for  nearly  a  million  sterling ;  a  guarantee  which  cannot 
be  tampered  with,  or  diminished,  because  you  cannot 
call  up  or  use  any  portion  of  it  for  the  purposes  of  your 
ordinary  business.  It  can  only  be  called  up,  in  the 
words  of  the  Act, — '  in  the  event  and  for  the  purpose  of 
the  bank  being  wound  up.*  It  is  a  perpetual  guarantee, 
which  can  be  neither  curtailed  by  use,  nor  barred  by  the 
Statute  of  Limitations. 

The  security,  therefore,  which  you  offer  to  your 
depositors  would  appear  to  be  sufficiently  ample. 

Your  assets  actually  in  hand,  according 
to  your  balance-sheet,  amount  to        .        .    ;^ 3,000,000 

But  in  addition  to  these  you  have  capital 
in  reserve  liability  to  the  amount  of        .     .  900,000 

Making  together ;ff3,900,ooo 


LET.  XXXV.]  Capital  and  Shares.  263 

But  your  liabilities  to  your  depositors  and  others 
amount  only  to  ;^2,5  50,000;  so  that  your  resources 
exhibit  a  surplus  of  ;^  1,350,000  in  excess  of  your 
liabilities.  The  term  *  limited,*  therefore,  as  applied  to 
your  Bank  without  qualification,  is  somewhat  mislead- 
ing, because  for  every  £iQO  which  you  owe  to  a  de- 
positor, you  give  him  security  for  ;^  153. 

In  other  words,  your  margin  for  contingencies  is 
;^  1,3  50,000 :  you  might  make  bad  debts  to  that  amount, 
and  still  have  resources  left,  which  would  enable  you  to 
payyour  depositors  all  round  twenty  shillings  in  the  pound. 

But  the  idea  of  the  bad  debts  of  a  bank  like  yours 
ever  coming  within  measurable  distance  of  such  a  total, 
is  preposterous.  Even  a  Board  of  financial  lunatics,  with 
a  maniac  for  Manager,  could  not  pile  up  such  a  mountain 
of  loss,  if  they  had  a  whole  decade,  without  detection 
or  disturbance,  to  do  it  in. 

But  they  would  not  go  undetected  nor  undisturbed  for 
a  tenth  part  of  that  time.  Within  the  compass  of  the 
first  twelve  months  of  their  maladministration,  these 
gentlemen  would  find  themselves,  under  the  new  order 
of  things,  put  in  financial  durance  by  the  auditors,  to 
await  the  verdict  of  their  shareholders. 

No  doubt  there  will  be  banking  losses  in  the  future ; 
but  they  can  never  attain  to  vast  and  overwhelming 
totals  again,  because  hereafter  they  will  be  checked  in 
time.  There  can  never  again  be  successful  concealment 
of  evil-doing  stretching  over  periods  of  time.  You  will 
have  to  render  an  annual  account  of  your  stewardship, 
and  that  account  must  henceforth  be  verified  by  the 
sharpened  vision  of  skilled  accountants.  The  nursing 
of  doubtful  accounts  by  means  of  fraudulent  book- 
keeping to  figures  more  and  more  portentous,  year  after 
year,  will  no  longer  be  possible.  The  enormities  of  our 
banking  past,  can  never  be  re-enacted ;  the  banking 
misfortunes  of  the  future  will  be  trifles  light  as  air, 
compared  with  the  devastating  experiences  of  the  past. 

We  have  thus  far  dealt  with  the  proportion  which 


264  The  Country  Banker,  [let.  xxxv. 

your  entire  capital,  called  and  uncalled,  bears  to  your 
liabilities.  This  proportion  is  the  measure  of  your  ulti- 
mate stability  as  a  bank. 

But  this  larger  question  includes  a  less — namely,  your 
immediate  stability — of  which  a  popular,  but  inexact 
measure,  is  found  in  the  relative  amount  of  your  working 
capital.  This  is  taken  in  your  balance-sheet  at  ;^45o,ooo 
— that  being  the  united  amount  of  your  paid-up  capital 
and  rest. 

In  the  same  document,  your  liabilities  to  depositors 
and  others  are  taken  at  ;^2,55o,cxx).  The  ratio  of 
liabilities  to  working  capital,  therefore,  in  your  case, 
is  as  six  to  one. 

But  this  ratio  differs  greatly  amongst  banks.  In  some 
it  is  only  as  two  to  one ;  in  others,  the  excess  is  even 
as  eight  or  ten  to  one.  There  is  no  accepted  rule  in 
the  matter,  and  it  would  be  difficult  to  frame  one.  The 
bank  with  the  lowest  ratio  of  working  capital  may,  in 
reality,  be  as  safe  for  its  engagements  as  the  bank 
with  the  highest.  It  is  mainly  a  question  of  assets. 
If  they  are  equally  sound  in  either  case,  the  pro- 
portion of  working  capital  to  liabilities  is  of  secondary 
importance. 

Nevertheless,  the  public  will  be  apt  to  regard  the 
immediate  stability  of  a  bank,  which  is  only  indebted  to 
twice  the  amount  of  its  paid-up  capital  and  rest,  as  more 
assured,  than  that  of  a  bank  whose  indebtedness  stands 
at  ten  times  the  amount  of  both.  To  avoid  either 
extreme,  I  have  placed  the  District  Union  Bank  in  an 
average  position,  about  midway  between  ten  and 
two. 

If  this  be  accepted  as  the  normal  ratio  which  your 
working  capital  should  bear  to  your  liabilities,  the  ques- 
tion next  arises, — how  to  provide  additions  to  your 
capital  as  they  may  be  required,  which  shall  yield  the 
greatest  advantage  to  your  shareholders,  and  give  most 
contentment  to  your  depositors  ? 

Your  shares  are  registered  as  £a^o  each,  with  ;^io 
paid  and  ^30  in  reserve  liability;  but  you  are  doubtful 


LET.  XXXV.]  CapitaL  ana  S/tarc^,  265 

whether  it  would  not  have  been  equally  politic  to  have 
placed  only  ;^  20  in  the  latter  form,  and  thus  left  £10 
further  to  call  on  each  share.  Let  us,  therefore,  put 
your  method  to  the  test  of  figures.  Let  us  assume 
that,  in  the  course  of  time,  your  deposits  shall  become 
doubled  in  amount,  and  that  your  working  capital, 
in  consequence,  has  likewise  been  doubled,  by  succes- 
sive calls  on  your  existing  shares,  which  would  then 
stand  at  ;^20  paid,  and  ;f  20  in  reserve  liability.  Let 
us  further  assume  that  your  Rest,  sharing  in  the  general 
prosperity  of  your  business,  has  experienced  the  same 
ratio  of  increase,  and  now  stands  at  twice  its  former 
amount. 

Your  position  will  then  be  as  follows : — 

Deposits jf5,ooo,cx)0 

Assets  in  hand : — 

As  against  Deposits          .  .    .    ;^5, 000,000 

„           Capital  Paid  up  .                  600,000 

„           Rest         .        .  .    .          300,000 


;f5,900,000 

Add  Capital  in  reserve  liability     .  600,000 

Aggregate  resources  ;^6, 500,000 

Showing  a  surplus  of  a  million  and  a  half,  or  30  per 
cent  in  excess  of  your  liabilities  to  depositors. 

Let  us  now  put  the  other  method  to  the  test  of  figures, 
and  assume,  that  you  have  provided  the  addition  to  your 
paid-up  Capital  and  Rest  by  successive  issues  of  new 
shares,  identical  in  all  respects  with  your  existing  ones, 
and  that  they  have  been  distributed  rateably  amongst 
your  proprietors. 

The  average  price  at  which  your  shares  have  sold  for 
many  years  past,  appears  to  have  been  ;^20  premium. 
If  you  issue  the  new  shares  therefore  at,  say,  ^^lo  pre- 


266  The  Country  Banker,  [lit.  xxxv 

mium,  you  may  confidently  rely  upon  their  being  taken 
up  with  avidity. 

This  amount  of  premium,  on  30,CXX)  new  shares, 
would  enable  you  to  add  ;^  300,000  to  your  Rest,  and 
thus  raise  the  total  of  that  fund  to  ;^450,ooo ;  whilst 
on  the  shares  thus  emitted,  there  would  be  a  profit, 
measured  by  the  market  price,  of  ;^io  on  each, — thus 
affording  your  proprietors  a  share  bonus  of  ;^  300,000, 
Your  position  would  then  be  as  under : — 

Deposits ;^5,ooo,ooo 


Assets  in  hand : — 

As  against  Deposits 

5,000,000 

„           Paid-up  Capital 

600,000 

„           Rest     . 

450,000 

Total  in  hand 6,050,000 

Add  Capital  in  reserve  liability    .        1,800,000 

Aggregate  resources  ;^7,850,ooo 

These  figures  give  a  surplus  of  ;^ 2,850,000,  or  57  per 
cent,  of  means  in  excess  of  liabilities. 

From  a  depositor's  point  of  view,  there  can  be  no 
doubt  which  position  of  the  two  will  most  commend 
itself  to  his  favour.  He  will  rather  that  his  margin  of 
safety  stood  at  57  per  cent,  than  at  30 :  he  will  rather 
that  your  resources  exceeded  your  indebtedness  by 
three  millions  sterling  than  by  only  a  million  and  a 
half. 

Moreover,  if  you  admit  the  principle,  that  the  security 
which  you  give  to  depositors  ought  to  increase  rateably 
with  the  increase  in  your  deposits,  your  method  of  pro- 
vision would  not  meet  this  requirement.  To  make  a 
call  upon  subscribed  capital  already  in  existence,  makes 
no  addition  to  its  amount;  it  merely  alters  its  form. 
Your  subscribed  capital,  when  your  deposits  were  only 
2 J  millions,  stood  at  £  1,200.000 ;  and  it  would  stand  at 


trr.  XXXV. J  Capital  and  Shares,  267 

that  figure,  and  no  more,  when  your  deposits  had  in- 
creased to  5  millions. 

It  is  true,  as  you  point  out,  that  by  your  method,  the 
remaining  liability  on  each  of  your  shares  would  be 
reduced  tO;^20 ;  whereas,  by  the  method  actually  adopted, 
the  liability  would  continue  at  £10.  What  effect  this 
might  have  on  the  market  price  of  your  shares  is  hardly 
worth  discussion.  It  will  probably  have  none ;  but,  put 
it  at  what  you  may,  ft  will  be  but  a  feather's  weight  of 
set-off,  against  the  moral  disadvantage  of  allowing  your 
deposits  to  be  doubled  in  amount,  without  adding  a 
pound  to  your  subscribed  capital 

In  the  altered  conditions  of  English  banking  which 
the  Act  of  1879  will  enforce,  it  is  impossible,  humanly 
speaking,  that  the  shareholders  in  any  bank  will  ever 
be  called  upon  to  find  a  sixpence  on  account  of  their 
reserved  liability.  Before  that  point  can  be  reached,  a 
bank  must  have  squandered,  in  a  single  year,  the  whole 
of  its  paid-up  capital  and  rest  in  bad  debts,  a  sup- 
position which  transcends  rational  belief.  Even  in  the 
most  recklessly  managed  banks  on  record,  it  has  taken 
periods  of  years  to  reap  such  a  harvest  of  disaster. 

Reserve  liability,  then,  virtually  exposes  a  shareholder 
to  nothing,  and  costs  him  nothing.  It  is  a  liability 
which  he  may  dismiss  from  his  thoughts,  as  a  thing 
which  will  never  touch  his  pocket  or  trouble  his  rest. 

But  although  the  liability  may  be  thus  lightly  regarded 
by  shareholders,  it  will  afford  an  abiding  ground  of 
assurance  to  the  minds  of  depositors.  Reserve  liability 
is  to  them  the  equivalent  of  so  much  capital  locked  in 
your  cash  vaults,  in  trust  for  their  special  protection. 

It  may  not  exist  in  the  actual  form  of  bank  notes  or 
gold,  but  it  is  convertible  into  these  at  any  time  when 
occasion  demands.  No  portion  of  it  can  be  called  up 
and  exposed  to  the  risks  of  your  business  :  it  is  an 
inviolable  fund,  which  you  cannot  tamper  with,  or  deplete, 
even  if  you  would. 

Seeing  then  that  reserve  liability  costs  shareholders 


268  The  Country  Banker,  llet.  xxxv. 

nothing,  whilst  it  gives  lasting  assurance  and  comfort  to 
depositors,  in  proportion  to  its  amount,  it  would  seem 
an  act  of  bootless  thrift  not  to  make  it  ample. 

In  making  any  additions  to  your  capital,  you  will 
proceed  tentatively  ;  you  will  not  seek  to  enlarge  it  the 
moment  the  general  level  of  your  deposits  indicates  a  rise. 
You  will  defer  taking  action  till  it  is  seen  whether  the 
increase  is  casual  or  permanent :  whether  it  is  the  result 
of  a  gradual  and  durable  rise  over  the  whole  area  of 
your  district,  or  an  exceptional  and  transitory  increase 
here  and  there. 

This  precaution  is  necessary,  because,  although  an 
increase  in  your  deposits  ought  to  be  followed  eventually 
by  an  increase  in  your  capital,  it  does  not  follow  that  the 
reverse  of  the  principle  holds  good.  Theoretically,  a 
reduction  of  your  deposits  ought  to  be  followed  by  a 
proportionate  reduction  of  your  capital ;  but  in  banking, 
theory  has  sometimes  to  give  way  to  practice  and 
expediency. 

For  a  bank  to  reduce  its  capital,  on  any  pretext,  is  to 
adventure  upon  a  ticklish  operation.  If  it  does  so, 
because  its  depositors  have  seen  fit  to  withdraw  certain 
of  their  moneys,  a  reduction  of  its  capital  is  not 
calculated  to  entice  the  deposits  back  again,  nor  to 
attract  fresh  ones.  To  advertize  even  the  District  Union 
Bank  as  'limited  and  reduced,*  might  give  the  impression, 
to  the  minds  of  the  ignorant,  that  the  Bank  has  got  into 
trouble  and  is  going  to  wind  up.  You  must  be  well 
assured,  therefore,  that  any  important  increase  in  your 
deposits  has  in  it  the  element  of  permanence,  before  you 
make  a  corresponding  increase  in  your  capital ;  because 
banking  capital,  once  paid  up,  is  practically  beyond 
recall. 


LETTER    XXXVJU 

PROFIT    AND    LOSS. 

Proportion  thy  expenses  to  what  thou  hast  in  pyssession,  not 
to  thy  expectancies ;  otherwisey  he  that  feeds  on  wind^  must  needs 
be  griped  with  the  cholic  at  last.  Fuller. 

It  is  still  a  matter  of  wonder  to  many  people  how 
banking  profits  are  made ;  how,  especially,  while  the 
Bank  of  England  rate  of  discount,  on  the  average  of 
years,  rules  at  barely  3^^  per  cent.,  banks  can  realize, 
and  do  annually  disburse  dividends  ranging  from  10  to 
20  per  cent,  on  their  paid-up  capitals. 

But  the  problem  is  not  difficult  of  solution.  We  have 
merely  to  take  your  balance-sheet,  and  construct  upon 
the  basis  of  its  principal  figures,  what  shall  be  at  least  an 
approximate  guess  at  the  results  of  your  operations  for 
any  given  twelve  months. 

Profits  of  Banking.  It  will  simplify  the  calcula- 
tion, if  we  assume  that  the  expenses  of  the  bank  will  be 
covered  by  the  commission  charged  on  its  overdrawn 
and  other  accounts  and  transactions.  These  charges  are 
designed  to  cover  such  expenses,  and  ought  to  suffice  for 
that  purpose. 

Your  Capital  and  Rest,  being  your  own  property,  and 
not  therefore  subject,  like  your  deposits,  to  withdrawal, 
may  safely  be  laid  out  on  a  class  of  accounts  to  bring 
you  in  a  steady  5  per  cent 

/  Your  deposits,  on  the  other  hand,  not  being  your  own 
money,  but  that  of  other  people,  and  subject  to  repay- 


270  The  Country  Banker.         [let.  xxxvi. 

ment  at  short  notice  or  at  call,  must  be  invested  in  less 
productive  but  more  available  forms  of  security.  If 
invested  in  the  proportions  of  cash  in  hand  and  at  call, 
Consols,  bills  of  exchange,  and  other  items,  as  set  forth 
in  your  balance-sheet,  your  deposits  would  bring  you  in 
3}  per  cent,  on  the  average  of  years, — that  is,  on  the 
supposition  that  your  discounts  and  advances  would 
yield  you,  all  round,  one  per  cent,  above  Bank  rate.* 
It  follows,  that  if  your  rate  of  deposit  interest  should 
average  2f  per  cent,  your  deposits,  as  a  whole,  would 
yield  you  a  return  of  one  per  cent. 

Proceeding  upon   these  data,  we  have  the  following 
result,  as  the  estimated  sum  of  your  profits  : — 

Capital  and  Rest    ;£'45o,ooo  @  57e    ;^22,5oo 
Deposits       .        .     2,4CX),ooo  @~i7o       24,000 


;^46,5oo 
This  would  enable  you  to  pay  your 

usual  dividend  of  15  per  cent,  or     .     45,000 


and  leave  a  surplus  of      .        .         .     ;^  1,500 

To  this  will  have  to  be  added  the  profits  on  your 
circulation  of  notes,  and  on  the  other  minor  items  in 
your  balance-sheet  Your  surplus,  thus  supplemented, 
ought  to  provide  you  with  a  margin  amply  sufficient  to 
cover  bad  debts. 

*  Average  Bank  of  England  rate  of  discount  for  ten  years,  ended 
31st  December,  1884— ;^3  3^.  \id. 

Average  rate  for  Call  and  Notice  Money  with  brokers,  same  pericd. 
It.  2j.  %d. 

;^200,ooo  in  till,  yielding Nil. 

350,000  at  call,  at;^2  2s.  Sd.  per  cent.         .     .        }C7,A^S 
300,000  Consols,  at  £2  P^"^  cent.       .        .        .  9,ooo 

'-^S^  SS:rj  }  ••  ^4  3^.  n^.  per  cent  .        65,035 


;/^2,4O0,000,  yielding ^81,500 

sa  3I  per  cent 


LRT.  XXXVI.]  Profit  and  Loss,  271 

These  figures  give  prominence  to  the  fact  that  the 
profits  of  a  bank,  beyond  what  are  derived  from  the 
employment  of  its  own  capital  and  rest,  largely  depend 
on  the  amount  of  its  deposits.  Let  your  deposits,  for 
example,  be  increased  by  half  a  million — your  other 
figures  remaining  the  same — and  you  add  ;£"5C)oo  to  your 
yearly  profits  :  or  reverse  the  operation,  and  the  result 
will  be  reversed. 

It  has  to  be  admitted  that  this  method  of  arriving  at 
the  constructive  profits  of  a  country  bank,  is  a  rough 
and  ready  one,  and  would  require,  in  almost  every  case, 
manifold  adjustments  to  give  it  complete  exactitude : 
but  it  may  serve  to  shew  how  large  dividends  may  be 
honestly  earned  and  lawfully  disbursed  by  country 
banks,  even  when  a  low  general  rate  of  interest 
prevails. 


Risks  of  Banking.  The  business  of  a  bank  is  swift 
of  movement  and  enormous  in  volume.  It  combines 
the  widest  area  of  risk  with  the  lowest  rate  of  profit. 
The  business  of  a  trader  is  by  comparison  slow  in  move- 
ment, limited  in  volume,  and  carries  a  high  rate  of  profit. 
It  combines  the  smallest  area  of  risk  with  the  largest 
rate  of  gain. 

Your  Bank  will  be  glad  to  employ  any  portion  of  its 
deposits  in  the  discount  of  high-class  paper  at  a  net 
profit  of  one  per  cent,  per  annum.  On  a  bill  at  three 
months'  date  for  ;^5ooo,  your  profit  would  consequently 
be  £\2  10s.,  and  no  more.  But  a  merchant  or  trader 
would  not  consider  even  5  per  cent,  an  exorbitant  rate 
of  profit,  on  any  ordinary  line  of  mercantile  or  trading 
operations.  That  percentage,  however,  on  ;^5ooo,  would 
produce  ;^25o,  or  twenty  times  the  rate  of  banking 
profit. 

Let  us  suppose  that  the  bill  for  jCS<xX)  is  drawn  upon 
one  of  those  large  houses  which  do  fail  at  times,  and 
that  the  dividend  is  five  shillings  in  the  pound,  which 
unhappily  would  be  a  more  than  liberal  estimate,  and 


2  72  The  Country  Banker         [lkt.  xxxvi. 

that  you  are  thus  saddled  with  a  loss  of  ;^375o.  It  may 
not  strike  you  at  the  moment,  but  you  will  find  by  a 
simple  process  in  arithmetic,  that  it  will  require  three 
hundred  times  the  profit  oi  £12  los.  to  repair  the  loss. 
In  other  words,  you  will  have  to  discount,  without  loss, 
fresh  sheaves  of  high-class  paper  to  the  startling  total  of 
a  million  and  a  half,  in  order  to  replace  the  deficiency  on 
this  ill-starred  bill  for  ;^5ooo.  A  banker's  choice  of  first- 
class  bills  had  needs  be  infallible,  when  these  may  be 
the  consequences  of  a  single  slip. 

It  has  further  to  be  noted,  that  the  risks  of  a  banking 
business  are  not  measurable  by  the  moneys  owing  to  a 
bank  on  its  discounts,  overdrafts,  or  advances,  on  any 
given  day;  because  the  items  which  constitute  these 
aggregates  as  they  stand  are  in  the  course  of  perpetual 
change.  As  series  after  series  of  risks  run  off,  they  are 
immediately  replaced  by  others.  The  bills  and  ad- 
vances due  and  paid  to-day,  will  be  succeeded  by  fresh 
discounts  and  advances  to-morrow ;  so  that,  to  find  the 
true  measure  of  banking  risk,  we  must  take  the  sum 
turned  over  in  these  transactions  within  a  given  period, 
and  not  their  mere  aggregates  at  a  given  date. 

Taking  your  bills  of  exchange,  for  example,  which  we 
put  at  ;^  1, 190,000,  your  investment  in  them  is  turned 
over,  on  the  average,  four  times  in  the  year.  Your 
banking  risks  on  bills  of  exchange  alone,  therefore,  ex- 
tend to  ;^4,76o,ooo  in  the  course  of  the  twelve  months. 
You  discount  fresh  bills,  and  consequently  incur  fresh 
risks,  to  that  amount,  and  thus  invest  and  re-invest,  in 
discounts  alone,  a  sum  equal  to  your  entire  capital  and 
-est  ten  times  a  year. 

The  profits  of  an  ably  managed  bank,  holding  deposits 
to  five  or  six  times  the  total  of  its  capital  and  reserve, 
are  no  doubt  large  in  aggregate  ;  but  they  owe  their 
largeness  to  their  multitude,  not  to  their  scale. 
The  ;^45,ooo  of  net  profit,  which  you  annually  disburse 
in  dividends  to  your  proprietors,  if  resolved  into  its 
elements,  would  be  found  mainly  to  consist  of  millions 
of  minute  particles  of  interest  and  charges,  which  have 


LET.  XXXVI.]  Profit  and  Loss,  2  73 

accrued  day  by  day  on  many  thousands  of  accounts. 
The  ultimate  atoms  of  banking  profit  are  mainly  to  be 
found  to  the  right  of  decimal  point,  even  when  that 
point  has  only  a  farthing  for  its  integer. 

The  total  in  money,  bills,  and  cheques,  received  and 
paid  by  your  thirty  Branches,  averages  ;^4000  a  day  for 
each,  and  the  average  for  your  Head  Office  is  ;^5o,ooo, 
making  in  all  a  million  a  week,  or  a  total  annual  move- 
ment of  fifty  millions.  Wherefore  if  banking  profits 
are  reckoned  by  tens  of  thousands,  they  are  extracted 
from  tens  of  millions  of  pounds  of  transactions,  the  per- 
centage of  risk  on  which  had  needs  be  infinitesimal  and 
next  door  to  nothing. 

A  prudent  trader,  taking  annual  stock  of  his  affairs, 
would  not  consider  10  per  cent,  too  much  to  write  off  his 
book-debts,  in  order  to  arrive  at  their  probable  value  to 
realize :  but  if  your  book-debts — that  is  to  say,  your 
overdrawn  accounts,  advances,  and  discounts,  had  to  be 
subjected  to  a  like  percentage  of  abatement,  you  would 
have  to  write  off  your  paid-up  capital  and  rest  as  lost 
and  gone  once  a  year. 


Provision  for  Loss.  A  Banker,  in  writing  off  his  bad 
debts  for  the  year,  is  apt  to  console  himself  with  the  re- 
flection, in  respect  of  most  of  them,  that  he  can  never  make 
exactly  such  again,  because  he  will  know  how  to  guard 
against  them.  That  may  be ;  but  losses  may  already 
be  in  embryo  which  will  come  to  him  from  directions  as 
yet  unsuspected.  There  may  be  debts  on  his  books 
fair  to  look  at  from  without,  but  rotten  within.  In 
making  his  annual  provision  for  bad  debts,  therefore, 
he  will  be  guided  by  the  average  of  his  past  expe- 
riences, rather  than  by  the  figures  for  any  current  year. 
If  these  amounted,  for  example,  to  £sooo^  whereas  his 
annual  total  of  bad  debts  over  a  period  of  years  has 
averaged  ;^7500,  he  will  do  well  to  set  a  sum  aside 
which  shall  more  nearly  approach  the  latter  than  the 
former  figure  ;  because,  if  his  losses  are  less  than  the 


2  74  ^'^^  Country  Banker,         [let.  xxxvi. 

average  this  year,  they  may  be  equally  in  excess  of  it 
next.  He  will  thus  give  increased  uniformity  to  his  rate 
of  dividend,  and  consequent  stability  to  the  price  of  the 
bank's  shares. 

In  dealing  with  accounts  or  bills  individually,  which 
have  become  more  or  less  doubtful,  a  liberal  treatment 
is  always  best.  When  you  have  to  provide  for  loss  on  any 
given  account  or  bill,  do  not  minimize  the  risk  ;  do  not 
scale  it  at  the  least,  but  at  the  worst  that  may  happen  ; 
and  let  your  provision  be  in  accordance  with  your  prin- 
ciple. It  is  difficult  to  imagine  a  more  depressing  pro- 
tess  than  the  perusal  of  a  bad  debts  ledger,  wherein  the 
debts  have  been  insufficiently  written  down.  You  open 
this  mortuary  of  debt,  with  a  faint  hope,  perhaps,  that 
you  may  chance  upon  some  account  that  has  been  over 
provided  for,  or  some  stray  dividend  which  has  been 
overlooked  ;  but  you  will  find  this  hope  misplaced. 
These  remains  of  departed  accounts  and  dishonoured 
bills  arc  more  likely  to  require  fresh  grants  from  your 
profits  to  provide  for  their  final  interment.  Looked 
upon  as  assets,  they  are  as  devoid  of  substance  as  the 
ghosts  in  Tartarus.  Better,  surely,  at  all  times  be  in 
a  position  to  inform  your  proprietors  that  your  estimate 
of  loss  has  been  in  excess,  than  that  the  reality  has 
exceeded  your  worst  anticipations,  and  that  you  have  so 
many  more  thousands  to  write  off!  It  will  better  accord 
with  their  humour  to  write  misfortune  off  at  once,  than 
by  exasperating  dribblets.  If  a  tooth  has  to  come  out, 
it  is  better  to  have  the  operation  perfected  by  one 
wrench  than  by  a  series. 

There  is  a  certain  grimness  of  comfort  experienced  by 
the  shareholders  of  a  bank,  when  they  know  that  their 
Directors  uniformly  take  the  worst  view  of  things,  and 
make  such  ample  provision  for  bad  debts,  that  there  is 
never  any  residue  of  loss  to  provide  for.  In  thus  dealing 
with  actual  or  anticipated  disaster,  your  fund  for  losses, 
instead  of  being  in  a  chronic  state  of  exhaustion,  will 
generally  have  a  growing  balance  at  its  credit,  to  provide 
against  exceptional  mishap.     Your  holding  of  over-due 


ide  fli 

1 


LIT.  XXXVI.]  Profit  and  Loss,  275 

bills,  ill-starred  advances,  and  moribund  accounts,  in- 
stead of  being  featured  by  a  hopeless  sterility,  will 
rather  suggest  to  the  fancy  a  gathering  of  financial 
wreckage,  from  which,  every  now  and  then,  there 
comes  ashore  the  flotsam  of  an  unexpected  dividend, 
or  the  jetsam  of  some  derelict  security.  A  bad  debt 
fund,  thus  nourished,  will  give  you  back  of  your  abund- 
ance, and  become  to  your  Board  an  intermittent  source 
of  found  money  and  pleasurable  emotion. 


Dividend  and  Bonus.  It  is  the  usage  of  some 
banks  to  distribute  their  annual  profits  to  their  pro- 
prietors entirely  in  the  form  of  dividend.  Others  make 
the  distribution  partly  in  this  form,  and  partly  in  the 
shape  of  bonus. 

In  favour  of  the  latter  course,  it  may  be  urged  that  you 
can  with  certainty  fix  upon  some  rate  of  dividend  which 
you  will  be  able  to  pay,  under  all  circumstances.  Your 
shareholders  would  thus  know  that,  up  to  a  certain 
figure,  they  might  reckon  upon  a  regular  income  from 
your  shares,  as  surely  as  if  it  came  to  them  from  the 
Three  per  Cents.  The  *  bonus '  is  thus  supposed  to  be 
relegated  to  the  uncertainties,  and  the  edge  of  dis- 
appointment to  be  taken  off,  when  this  form  of  largess 
is  not  forthcoming. 

I  think  this  is  a  sanguine  view  to  take  of  the  feelings 
of  shareholders,  when  the  supposed  default  happens, 
and  would  suggest  that  your  annual  distribution  of 
profits,  whether  it  be  partly  by  way  of  bonus,  or  wholly 
in  the  shape  of  dividend,  should,  as  nearly  as  possible, 
be  uniform,  one  year  with  another.  The  property  of 
steadiness  in  your  rate  of  dividend  will  be  more 
esteemed  by  your  proprietors,  than  if  it  varied  from 
one  half-year  to  another,  and  gave  to  the  price  of 
your  shares  a  corresponding  degree  of  change  and 
uncertainty. 

If  you  find,  for  example,  that  on  the  average  of  years 
vour  profits  will  sustain  an  annual  distribution  of  15  per 

T  2 


276  The  Country  Banker.  [let.  xxxvi. 

cent,  it  would  be  well  to  adhere  to  that  rate,  even 
though  you  could  in  exceptional  years  divide  consider- 
ably more ;  because,  in  less  fortunate  times  you  may 
have  considerably  less  to  divide.  Let  your  divisible 
profits  for  two  consecutive  years  be,  let  us  say  : — 

1st  year  ;^48,ooo,  or  16  per  cent  on  capital. 
2nd    „   £\2fyoo,  „  14  „ 

Average       15 

Instead  of  dividing  16  per  cent,  the  first  year,  and  14 
the  next,  it  would  be  a  wiser  policy  to  carry  i  per  cent, 
forward  from  your  prosperous  year  to  supplement  the 
profits  of  its  less  fertile  successor,  and  thus  pay  15  per 
cent,  in  both. 

It  has  to  be  admitted  that,  theoretically,  this  course 
would  be  open  to  objection.  The  purist  would  say 
that  you  have  no  right  to  make  an  artificial  and 
arbitrary  division  of  annual  profits.  However  much,  or 
however  little,  you  have  to  divide,  it  ought  to  be 
divided,  without  regard  to  what  your  next  dividend 
may  be. 

If  the  majority  of  your  shareholders  were  persons 
who  thoroughly  understood  such  matters,  this  contention 
would  be  more  tenable  ;  but  your  proprietors,  as  a  body, 
are  not  versed  in  matters  of  banking  finance.  As  a 
rule,  they  are  conspicuously  ignorant  of^lhis  branch  of 
knowledge.  It  is  no  disparagement  to  the  average 
comprehension  of  country  shareholders  to  affirm,  that 
if  you  pay  them  16  per  cent,  one  year,  and  return  to  14 
the  next,  it  will  be  difficult  to  persuade  the  bulk  oi: 
them  that  the  reduction  has  arisen  from  ordinary  causes. 
They  will  witness  with  concern  a  corresponding  fall  in 
the  price  of  the  shares,  and  will  be  apt  to  fear  that  the 
bank  has  met  with  serious  disaster.  Your  high  dividend 
of  the  one  year  will  cause  that  of  its  successor  to  look 
doubly  disappointing.  It  will  seem  to  this  section  ol 
your  proprietors  that  you  have  put  2  per  cent  into  their 


LET.  xxxvi.j  Profit  and  Loss,  277 

pockets  one  year,  only  to  take  it  out  again  the  next 
Moreover,  for  every  pound  of  variation  in  dividend,  you 
may  have  caused  twenty  times  the  variation  in  the 
market  price  of  their  shares. 

All  this  may  be  sound  in  theory,  but  the  majority  of 
your  shareholders  will  have  a  disposition  to  look  upon 
this  way  of  managing  their  affairs  as  an  upsetting  and 
inconvenient  thing  in  practice. 

In  common  with  other  banks  you  divide  your  net 
annual  profits  in  the  form  of  a  percentage  on  your 
Capital  alone.  But  as  your  Rest  is  as  much  the  property 
of  your  shareholders  as  the  paid-up  capital  itself,  your 
virtual  rate  of  distribution  to  your  proprietors  on  their 
own  money,  taking  your  annual  distribution  at  ;^ 45, OCX), 
ts  10  per  cent.,  and  not  15  ;  as  thus  : — 

£  100,000  Capital  @  10  per  cent.  =  £lo,ooo 
;^ 1 50,000  Rest  @   10  per  cent  «  ;^i 5,000 


;^4?5,ooo 


A  high  rate  of  dividend  has  a  certain  influence,  no 
doubt,  on  the  minds  of  the  general  public.  It  is  looked 
upon  by  many  as  evidence  of  a  bank's  stability  and 
success.  On  the  other  hand,  there  are  those  amongst 
your  customers,  who  imagine  that  the  terms  on  which 
you  work  their  accounts  must  be  usurious,  to  enable  you  to 
pay  1 5  per  cent  You  and  I,  of  course,  know  that  this  is  a 
fallacy;  and  that  high  dividends  in  banking  do  not  arise 
from  inordinate  rates  of  profit,  but  from  range  and  multi- 
tude of  operations.  A  difference  of  an  eighth  per  cent  in 
the  interest  on  Goldworthy's  deposit  of  j^  100,  for  example, 
would  make  a  difference  to  him  of  an  annual  half-crown ; 
but  the  same  fraction  per  cent,  would  make  a  difference 
to  you,  on  the  total  amount  of  your  deposits,  of  three 
thousand  pounds  a  year.  A  loss  or  a  gain  to  Gold- 
worthy  has  to  be  multiplied   by  twenty-four  thousand, 


278  The  Country  Banker.  [let.  xxxvl 

to  find  the  resulting  loss  or  gain  to  you.  Banking 
profit,  as  we  have  seen,  is  a  noun  of  multitude — an 
aggregation  of  atoms ;  and  banking  transactions  are 
conducted  on  terms  which  would  be  impossible,  except 
for  the  prodigious  multiplier  provided  by  their  volume. 

It  has  also  to  be  borne  in  mind  that  your  dividend  i? 
derived  from  a  business  and  its  accumulations,  now  half 
a  century  old,  and  that  your  15  per  cent,  is  based  on  the 
original  par  of  your  shares — the  ;^io  originally  paid 
upon  them  fifty  years  ago,  and  not  on  their  present 
market  price.  That  is  ;630,  on  which  your  dividend 
yields  a  return  of  5  per  cent,  therefore,  and  not  15. 

Nevertheless,  an  annual  distribution  of  15  per  cent,, 
put  it  as  we  may,  leads  to  misconception,  and  on  the 
whole  it  is  at  least  an  open  question  whether  bank 
dividends  had  not  better  be  based  on  Capital  and  Rest 
combined,  than  on  Capital  alone. 


LETTER    XXXVIl. 

THE    REST. 

He  who,  when  he  should  not,  spends  too  mMch,  shaii,  whtn  ht 
would  not,  have  too  little  to  spend.  Feltham. 

Your  Rest  or  Reserve  Fund  has  been  accumu- 
lated out  of  undivided  profits,  set  aside  from  time  to 
time  to  meet  unforeseen  losses,  so  that  your  usual  rate 
of  dividend  may  not  be  trenched  upon,  should  such 
losses  arise. 

This  being  the  object  of  the  fund,  it  ought  to  bear  a 
certain  proportion,  not  to  the  amount  of  your  paid-up 
capital,  but  to  the  total  of  your  assets ;  because  that 
total  is  the  true  measure  of  your  area  of  loss. 

Your  resources  represent  three  millions  of  money, 
invested  in  multifarious  items  of  banking  asset,  and  your 
Rest  is  put  at  5  per  cent,  of  this  aggregate. 

This  percentage,  like  most  of  our  other  figures,  is  a  sug- 
gestion merely.  It  is  larger  in  some  banks,  and  less  in 
others ;  but  for  the  sake  of  argument  it  may  be  taken 
as  it  stands.  This  at  least  is  certain— the  larger  your 
rest,  the  higher  your  rate  of  dividend  will  be.  The 
fund,  whatever  its  amount,  is  practically  a  sum  lent  you 
In  perpetuity  without  interest.  As  forming  a  portion  of 
your  working  capital,  you  can  safely  invest  it  in  the 
less  available  and  more  lucrative  forms  of  advance.  If 
invested  to  yield  5  per  cent.,  it  would  bring  you  in  ;^7500 
a  year,  or  an  annual  contribution  of  2  J  per  cent,  towards 
your  dividend. 

A  large  rest  inspires  belief  in  the  continuity  of  your 
rate  of  dividend.     In   this  way   it  gives   support  and 


28o  The  Country  Banker.         [let.  xxxvii. 

steadiness  to  the  market  price  of  your  shares.  Your 
shareholders  could  not  well  have  a  safer,  or,  as  we  shall 
see,  a  more  politic  investment. 

Nevertheless,  there  are  those  to  be  found  in  bank 
proprietaries,  here  and  there,  who  are  covetous  of  these 
rests  or  reserves  of  undivided  profits,  and  would  have  an 
immediate  division  of  at  least  a  portion  of  them,  if  they 
had  their  way.  Why,  they  urge,  leave  this  large  fund 
for  the  benefit  of  posterity }  Why  not  leave  future  share- 
holders to  provide  their  own  reserve  funds  ? 

To  test  the  soundness  of  these  views,  let  us  imagine 
that  your  shareholders  suffer  themselves  to  be  persuaded 
that  your  bank  can  be  worked  equally  well  on  a  Rest 
of  half  its  present  amount ;  and  that  the  other  half, 
;^75,oc)0,  ought  to  be  divided  amongst  them  rateably, 
and  that  it  is  divided  accordingly.  The  distribution  will 
yield  a  cash  bonus  of  ;^2  \os.  on  every  share  held  by 
your  existing  proprietors. 

But  in  making  them  this  presentation,  you  lose  for 
ever  the  use  of  the  ;^75,ocx)  thus  given  away — a  sum 
which,  at  5  per  cent.,  produced  ;^3750,  or  ij  percent. of 
your  annual  dividend ;  which  would,  therefore,  have  to 
be  reduced  from  15  to  13}  per  cent. 

What  effect  this  reduction  will  have  on  the  market 
price  of  your  shares,  it  is  hard  to  say  ;  but  that  it  will  at 
least  be  proportionate  to  the  drop  in  the  dividend,  goes 
without  saying.  In  all  likelihood  it  will  be  considerably 
more :  a  drooping  dividend  has  a  more  prejudicial  and 
immediate  effect  on  price  than  a  rising  one ;  but  let  us  take 
\he  drop  at  its  arithmetical  equivalent — £2  \os.  per  share. 

A  man,  then,  holding  a  hundred  of  your  shares  will 
have  received  a  bonus  of  ;^25o.  But  if  the  market  value 
of  his  shares  has  thereby  become  diminished  to  pre- 
cisely the  same  amount,  it  is  impossible  to  see  what  he 
has  gained  by  the  operation.  His  hundred  shares,  which 
were  worth  ;^3000,  are  worth  only  ;^27SO  now,  and  the 
probability  is  that  they  will  be  worth  a  good  deal  less  ; 
but  under  no  circumstances  can  he  gain  by  the  trans- 
action.   You  cannot,  even  in  banking,  eat  your  cake  and 


LET.  xxxvii.]  The  Rest,  281 

have  it:  you  cannot  enlarge  your  financial  blanket 
by  cutting  a  portion  from  one  end  to  tack  it  on  the 
other. 

But  if  it  is  impossible  to  see  how  your  shareholders 
could  benefit  by  this  self  appropriation  of  fifty  per  cent, 
of  the  Rest,  it  is  not  difficult  to  see  what  they  might  lose 
by  it. 

In  the  first  place :  it  will  cause,  as  we  have  just  said, 
a  reduction  in  your  usual  rate  of  dividend.  If  this  should 
be  attributed  on  all  hands  to  the  actual  cause,  little  harm 
might  come  of  it ;  but  it  will  not  be  so  attributed. 
There  is  a  widespread  ignorance  and  open-mouthed  cre- 
dulity about  banking  affairs,  which  you  have  always  to 
reckon  with.  It  will  suffice  for  the  majority  of  people 
to  know  that  the  District/Union  Bank  is  paying  a  lower 
dividend  than  heretofore,  to  enable  them  to  conclude 
that  the  Bank  is  not  doing  so  well  as  formerly.  Not 
content  with  this,  they  will  proceed  to  hazard  conjectures 
as  to  the  cause.  Some  will  assign  it  to  bad  debts,  others 
to  a  falling  off  in  its  business,  others  to  something  else. 
But  regarded  in  whatever  light,  a  reduction  in  your 
ordinary  rate  of  dividend  will  wear  an  unfavourable 
aspect  to  a  large  section  of  the  community. 

In  the  second  place :  you  have  to  take  into  account 
what  effect  the  reduction  will  have  on  the  minds  of  those 
who  can  read  a  bank  balance-sheet  perfectly,  and 
take  the  exact  measure  of  its  weakness  or  its  strength. 
Such  critics  are  limited  in  number,  it  is  true ;  but  they 
are  on  the  increase,  and  their  opinion  has  a  weight  which 
makes  itself  felt,  and  is  apt  to  spread.  To  such  ob- 
servers, the  abstraction  of  ;^75,ooo  from  your  Rest,  to 
put  into  your  own  pockets,  will  present  itself  as  neither 
more  nor  less  than  the  voluntary  extinction  of  one-sixth 
of  your  working  capital,  whereby  the  strength  of  yout 
position  will  be  impaired  in  a  like  degree.  It  will  be 
impossible  for  them  to  regard  the  operation  with  favour, 
or  to  speak  of  it  with  approval.  It  will  appear  to  them 
an  impolitic  weakening  of  your  position,  without  even 
the  poor  excuse  of  an  equivalent  to  justify  it. 


282  The  Country  Banker,        [let.  xxwh. 

Once  again :  a  large  proportionate  Rest  is  accepted 
by  the  public  as  evidence  of  prudence  and  ability  in 
the  management  of  a  bank ;  and  you  will  command  a 
larger  future  for  your  business  by  maintaining  your  rest 
at  Xi  50,000,  than  by  taking  half  of  it  back  again  to 
yourselves,  and  working  on  the  other  half.  If  you  would 
have  your  business  go  forward  and  your  custom  increase, 
do  not  yourselves  take  a  backward  step.  In  banking,  as 
in  other  things,  nothing  succeeds  like  success ;  and  the 
absorption  of  half  your  Rest  will  not  have  this  appear- 
ance, put  on  it  what  complexion  you  may. 

As  an  alternative  course,  you  suggest  that  the  ;^ 7 5, 000, 
instead  of  being  paid  to  your  shareholders  in  cash,  might 
be  added  to  the  amount  of  their  shares,  which  would 
thus  be  raised  from  ;^io  to  ;£"i2  los.  paid. 

The  alternative  would  have  this  advantage — it  would 
leave  the  amount  of  your  working  capital  unreduced  and 
your  financial  position  apparently  untouched.  But  the 
operation,  regarded  in  the  light  of  a  bonus,  would,  as  in 
the  previous  case,  defeat  itself.  Your  revenue,  it  is  true, 
would  be  unaffected  by  it.  Your  divisible  profits  would 
still  be;^45,ooo  :  but  out  of  these  you  would  have  to  pay 
dividend  on  the  £Tl,0OO  added  to  your  capital :  so  that 
your  annual  rate  of  distribution  would  sink  from  15  per 
cent,  to  12.  The  operation  would,  in  fact,  be  as  broad 
as  long.  A  dividend  of  12  per  cent,  on  ;^I2  io.f.  would 
be  the  exact  equivalent  of  15  per  cent,  on  ;^io.  To 
take  from  one  pocket  to  put  into  another,  is  a  futile 
way  of  enriching  yourselves,  and  a  mere  fooling  with 
figures. 

You  have  yet  another  course  to  suggest,  in  the  event 
of  the  attack  on  your  Rest  proving  successful ;  you 
would  create  7500  new  shares,  and  distribute  them 
gratis  amongst  your  shareholders,  first  paying  up  ;^io 
on  each  share  out  of  that  fund.  This  would  enable  you 
to  give  each  of  your  shareholders  one  new  for  every  four 
old  shares  held  by  him.  He  would  thus  receive  a  bonus 
equal  to  £j  \os.  on  each  old  share,  taking  the  market 
price  as  before  at  ;^30.     But  the  market  price  would  not 


WT.  XXXVII.]  The  Rest  283 

continue  at  that  figure.  You  would  have  created  and 
added  ;^75,000  to  your  paid-up  capital,  without  adding 
a  farthing  a  year  to  your  revenue.  Out  of  the  same 
balance  of  divisible  profit,  you  will  now  have  to  pay 
on  a  capital  enlarged  by  one  fourth.  So  that  your  rate 
of  dividend,  as  in  the  previous  case,  will  drop  from 
15  per  cent,  to  12,  and  your  apparent  bonus  will  dis- 
appear in  a  corresponding  shrinkage  of  price.  One 
hundred  of  your  shares  at  the  old  price,  made  them 
worth  ;^3000  to  the  holder :  and  125  of  them  at  the  new 
price  of  £24^  will  make  them  worth  no  more  to  him. 
His  means,  as  far  as  they  consist  of  your  shares,  will 
not  have  been  enlarged  a  single  pound  by  the  distri- 
bution, and  the  bonus  of  £y  los.  per  old  share  will 
prove  itself  a  mere  delusion  and  arithmetical  Jack-o'- 
lantern. 

Nevertheless,  of  the  three  methods  of  partition,  the 
last  would  be  the  least  objectionable.  Like  either  of 
the  other  processes,  it  would  equally  denude  your  Rest 
of  half  its  substance  :  but  it  would  have  this  in  its  favour 
— it  would  add  three  times  its  own  amount  to  your 
reserve  liability,  whereas  the  other  methods  of  appro- 
priation would  add  nothing  to  that  reserve.  They 
would  simply  absorb  the  £jS,(X>o,  and  render  back 
nothing  in  return.  They  would  pamper  a  present,  at  the 
cost  of  a  future  appetite.  They  would  not  exactly  kill 
the  goose  that  lays  your  golden  eggs ;  but  they  would 
do  it  grievous  bodily  harm. 

A  reduction  of  your  Rest  to  one  half  its  amount, 
therefore,  by  whatever  method  the  reduction  is  carried 
out,  involves  matter  for  consideration  which  lies  outside 
the  mere  question  of  its  practicability.  An  exercise  in 
the  rule  of  subtraction  will  suffice  for  that  purpose  at 
any  time. 

If  you  had  determined  from  the  outset  that  2J  per 
cent,  on  your  assets  would  have  provided  a  sufficiency 
of  Rest,  and  had  stopped  it  accordingly  at  ;^75,ooo, 
and  divided  all  accumulations  beyond  that  figure  from 
time  to  time  as  they  arose,  that  would  have  been  a 


284  The  Country  Banker,         [let.  xxxvii. 

different  matter.  It  is  one  thing  to  give  a  certain 
amount  of  security  to  depositors  and  stop  there ;  but  it 
has  quite  another  effect  upon  the  imagination  to  with- 
draw a  security  which  you  have  once  given. 

At  whatsoever  percentage  of  your  assets,  therefore,  you 
decide  to  put  the  limit  of  your  Rest,  that  limit,  once 
reached,  had  best  be  adhered  to  as  a  minimum,  and  the 
Fund  thereby  created  held  sacred  from  touch,  except 
to  provide  for  unforeseen  disaster.  To  break  into  it  in 
cold  blood,  for  partition  amongst  yourselves,  would  be  a 
delusive  gain,  and  a  short-sighted  act  of  improvidence 


LETTER    XXXVIII. 

OPENING    OF    NEW    BRANCHES. 

The  artist  himself  was  at  that  time  busy  upon  tuw  great 
designs  ;  the  first  to  sow  land  7vith  chaffs  wherein  he  affirmed  the 
true  seminal  virtue  to  be  contained,  as  he  demonstrated^  by  several 
experiments^  which  I  was  not  skilful  enough  to  comprehend. 

A  Voyage  to  Laputa. 

When  you  receive  a  memorial  'numerously  and 
influentially  signed,'  as  the  phrase  is,  inviting  your 
Bank  to  open  a  Branch  at  some  place,  in  opposition  to 
an  existing  bank  ;  it  will  be  well,  before  you  take  any 
other  step,  to  have  the  history  of  the  document  closely 
investigated.  You  will  especially  seek  to  know  with 
whom  the  movement  originated.  There  may  be 
ground  for  such  a  memorial  now  and  then,  but  that 
is  rarely  the  case.  It  will  not  seldom  be  found  that  the 
promoter  of  the  memorial  has  an  eye  to  the  manage- 
ment of  the  new  Branch  for  himself.  He  may  be  a 
school  teacher,  or  a  book-keeper  out  of  place,  or  a  trader 
on  his  last  legs,  or  something  else.  He  may  be  as  unfit 
to  be  manager  of  a  bank  as  to  be  Chancellor  of  the 
Exchequer,  but  that  in  no  way  abashes  him.  His 
concern  is  not  with  his  fitness  for  the  position,  but  with 
its  fitness  for  him.  It  is  such  an  easy  berth :  short 
business  hours,  all  the  regular  work  done  by  clerks, 
except  the  *  sweating '  of  obnoxious  customers, — a  luxury 
which  he  will  reserve  to  himself ;  a  good  salary ;  a  house 
to  live  in,  rent  and  taxes  free  with  fuel  and  light  thrown 
in ; — these  are  the  delights  which  stir  the  covetous  desires 
of  your  average  memorial-monger,  who  would  have  you 
invade  the  territory  of  a  neighbouring  bank,  in  order  to 


286  The  Country  Banker.       [let.  xxxvm. 

provide  him  with  a  situation.  *  We  do  not  attack 
him,'  to  borrow  a  passage  from  Sidney  Smith,  *  for  the 
love  of  glory,  but  for  the  love  of  utility,  as  a  Burgomaster 
hunts  a  rat  in  a  Dutch  dyke  for  fear  it  should  flood  a 
province.*  If  questioned  as  to  his  qualifications  for  the 
position,  the  promoter  has  no  misgivings.  He  presumes 
that  he  will  be  instructed  in  everything,  tvhat  to  do,  and 
he  flatters  himself  that  he  will  be  found  equal  to  the 
doing  of  it.  In  respect  of  his  claims,  he  submits  that 
the  memorial  itself  settles  that  point.  It  is  his  parch- 
ment of  title,  whereby  the  position  is  conveyed  to  him 
for  life  by  the  memorialists. 

There  is  unfortunately  no  difficulty  in  obtaining  signa- 
tures to  such  things.  People  by  scores  will  sign  them, 
without  a  thought  as  to  the  consequences.  It  never 
occurs  to  them  that  their  signatures  may  lead  one  bank 
to  do  grievous  injury  to  another,  not  only  without 
benefit,  but  with  serious  detriment  to  itself  But  this 
loose  signing  of  documents,  which  may  be  fruitful  of  evil, 
is  set  down  to  careless  good  nature ;  as  if  calculated 
enmity  could  do  more  to  set  a  couple  of  friendly  institu- 
tions by  the  ears. 

When  the    usual    'deputation,'    therefore,  come   to 
present  the  memorial,  and   assure  you  that  the   other  _ 
bank  is  most  unpopular  in  the  place,  and  that  scores* 
ot   its   customers  will   come   over  to  you   as   soon  as  ■ 
you   open    there,    you    will    receive    their    allegations 
with  outward  courtesy,  but  with  inward  distrust.     You 
will  promise  to  consider  the  matter.     With  this  view, 
you  will  have  the   statements  of  the  deputation  care- 
fully investigated   on   the  spot.     It    may  turn    out  by 
possibility  that  they  are  grounded  on  fact.     The  result 
of  the  enquiry  may  be  that  the  resources  of  the  existing 
bank  are    insufficient    for    the  growing  wants  of  the 
district,   and  that   there  is  actual  room  and  need   for 
another  bank. 

But  probability  runs  quite  the  other  way.  Youi 
Inspector  is  more  likely  to  find  that  the  other  bank  has 
ample   means   and   is   fairly  popular,  except  with  the 


LET.  XXXVIII.]   Opening  of  New  Branches,  287 

needy  few,  and  that  these  are  the  only  customers  of 
theirs  who  are  likely  to  come  over  to  you  in  scores 
— an  accession  of  custom  which  you  will  hardly  look 
upon  as  a  thing  to  be  desired. 

The  influential  signatories,  it  will  be  found,  attached 
their  names  to  the  memorial  without  an  idea  of  trans- 
ferring their  banking  accounts  to  you :  such  a  thing 
never  crossed  their  minds.  They  signed  it,  they  will  tell 
you,  because  they  were  asked  to  do  so,  and  thought  it 
would  be  a  good  thing  for  the  place;  that  was  their 
sole  motive,  and  they  had  no  intention  beyond  it. 

No  doubt  circumstances  will  arise  which  will  justify 
your  opening  a  fresh  Branch  from  time  to  time  in  places 
either  destitute  of  banking  accommodation,  or  whose 
monetary  wants  have  outgrown  the  means  of  the  exist- 
ing banks.  It  may  even  be  necessary  sometimes  to 
plant  a  new  Branch  at  a  given  point,  on  purely  strategic 
grounds.  If  on  the  line  of  towns  A.,  B.,  and  C.  you 
have  Branches  at  A.  and  C.  only,  you  could  not  allow 
another  bank  to  occupy  B.  You  would  have  to  do  so 
yourselves,  although  you  might  have  to  work  the 
Branch  at  a  loss. 

This  is  practically  your  position  at  Oxborough. 
Between  it,  on  the  main  line  to  your  next  Branch,  lies 
Midgely, — more  than  a  village  and  less  than  a  town — with 
its  500  people,  resolved  with  one  consent  to  have  a  bank 
in  the  place,  if  memorials  and  importunity  can  effect  it. 

You  may  assure  them  that  the  place  is  not  large 
enough,  as  yet,  to  support  the  expenses  of  a  bank,  but 
that  will  not  move  them  in  the  least.  You  may  seek 
to  prove  tkat  no  bank  would  be  foolish  enough  to 
neglect  a  chance  of  adding  to  its  profits,  but  your 
reasoning  will  fall  upon  ears  deaf  to  persuasion.  Midgely 
has  set  its  heart  on  having  a  bank,  and  a  bank  it  will 
have ;  and  if  you  persist  in  your  refusal  to  open  there, 
they  must  apply  elsewhere. 

Even  if  you  accede  to  their  desire  so  far  as  to  give 
them  a  sub-branch,  open  one  day  a  week,  it  will  be  a 


288  The  Country  Banker,         [let.  xxxvm 

costlier  step  to  you  than  you  will  ever  be  able  to  make 
them  understand  or  believe. 

Your  Manager  at  Oxborough  will  have  to  give  one- 
sixth  of  his  time  to  that  mite  of  an  establishment. 
He  will  have  to  be  absent  one  day  out  of  six  from  the 
important  business  of  Oxborough,  in  order  to  conduct 
the  Lilliputian  finance  of  Midgely, — a  sacrifice  of  which 
you  can  estimate  the  true  weight  and  value,  but  which 
you  will  fail  to  render  obvious  to  the  Midgelyites,  who 
are  not  given  to  thinking  lightly  of  their  monetary 
affairs. 

Your  opening  at  Midgely,  even  one  day  a  week,  will 
go  against  the  grain  ;  but  if  your  choice  comes  to  lie 
betwixt  your  going  there,  and  allowing  another  bank  to 
do  so  and  appropriate  your  Midgely  connexions  bodily, 
the  choice  ceases  to  be  optional.  Better  the  Midgely 
business,  minus  fresh  expense  and  trouble,  than,  so  to 
speak,  minus  itsel£ 


LETTER    XXXIX. 

THE   DIRECTORATE. 

Not  unlike  those  which^  at  the  instant  and  importunate  sute  of 
their  acquaintance^  refuse  a  cu?ining  Pilot  and  chuse  an  unskilfull 
Mariner y  which  hazardeth  the  ship  and  themselves  in  the  calmest 
tea.  EuPHUES. 

The  leading  subject  on  which  you  will  take  counsel 
with  your  daily  Board  will  be  as  to  the  safety  and  sound- 
ness of  proposed  discounts  or  advances  as  they  arise 
from  day  to  day.  In  matters  of  pure  finance  or  adminis- 
trative routine,  the  Directors  will  rather  look  to  you  for 
guidance,  than  seek  to  advise  you  ;  but  as  regards  the 
safe  employment  of  the  funds  of  the  Bank,  their  advice 
will  be  above  price. 

As  men  engaged  in  active  business,  they  will  be 
daily  on  'Change,  and  will  thus  keep  abreast  of  things. 
Whether  money  is  being  made  or  lost,  in  this  direction 
or  that,  by  this  firm  or  another,  they  can  hardly  fail  to 
hear  of  it,  and  either  by  direct  knowledge,  or  through 
business  friends,  will  be  able  to  trace  every  rumour  to 
its  source  and  take  its  proper  measure.  You  cannot 
yourself  be  a  frequenter  of  'Change.  Even  if  that  were 
desirable,  you  have  other  matters  to  supervise  which 
will  keep  you  a  prisoner  at  the  Bank  during  business 
hours.  Your  daily  Board  will  transact  your  out-of-door 
work  for  you  with  greater  efficiency  than  you  could 
hope  to  do  it  yourself. 

The  record  of  your  daily  proceedings  is  revised  by 
your  whole  Board,  which  meets  once  a  week  for  that 
and  other  purposes.  Two  of  your  six  Directors  retire 
annually  by  rotation,  but    are  eligible   for   re-election, 


290  The  Country  Banker,         [let.  xxxix. 

and  as  a  rule  they  are  re-elected  accordingly.  Your 
form  of  government  appears  to  be  suitably  adapted 
for  the  successful  administration  of  a  country  bank. 

In  some  banks,  the  retiring  Directors  cannot  be  re- 
elected for  a  time.  They  must  retire  from  the  service 
of  the  bank  for  at  least  twelve  months.  That  term 
of  retirement  served,  they  are  again  eligible  for  elec- 
tion. The  framers  of  this  proviso  no  doubt  believed 
that  there  was  an  element  of  safety  in  it.  They 
conceived  that  a  Board,  the  individual  members  of 
which  were  never  changed,  might  avail  themselves  of 
their  oneness,  in  the  event  of  things  going  wrong,  to 
withhold  the  fact  from  the  knowledge  of  the  share- 
holders ;  whereas  an  annual  change  in  the  membership 
of  the  Board  would  render  this  form  of  reticence  less 
feasible. 

This  was,  to  put  the  matter  mildly,  to  take  a  dis- 
paraging view  of  directoral  probity.  But  letting  that 
pass, — does  the  rule  really  afford  the  check  for  which 
it  was  designed }  In  the  case  of  a  bank  like  your 
own,  for  example,  if  two  of  your  Directors  were  obliged 
to  go  into  honorary  retirement  every  year,  but  could 
be  re-elected  the  year  following,  the  protection  afforded 
by  this  arrangement  against  wrong- doing  would  obvi- 
ously be  slight.  Your  Board  would  virtually  consist  of 
eight  members  instead  of  six. 

Unhappily,  there  have  been  instances  in  the  course  of 
the  last  half-century,  in  which  Directors  of  banks  have 
been  guilty  of  conduct  which  it  would  be  difficult  to 
denounce  in  language  of  sufficient  emphasis  :  but  to 
infer  from  these  few  and  exceptional  cases  that  all 
banking  Boards  are  tarred  with  the  same  brush,  would 
surely  be  an  unwarranted  perversion  of  the  law  of 
evidence.  But  even  if  the  inference  were  as  just  and 
reasonable,  as  it  is  untrue  and  ridiculous,  the  annual 
audit  by  public  accountants  of  the  books  and  balance- 
sheet  of  a  bank  has  put  an  end  for  ever  to  fraudulent 
collusion  on  the  part  of  its  Directors  or  Managers, 
hoodwink  its  proprietary. 


\  to| 


LET.  xtxix.]  The  Directorate,  29 1 

There  is  heard  at  your  meetings  of  shareholders  an 
occasional  demand  for  *  fresh  blood  *  on  the  direction. 
The  cry,  if  traced  to  its  source,  will  not  seldom  be  found 
to  have  originated  with  someone  who  has  a  secret  desire 
to  join  the  Board  himself.  However  this  may  be,  the 
ground  usually  taken  is,  that  a  Board  which  never 
changes  its  members,  unless  by  death  or  voluntary  retire- 
ment, becomes  virtually  self-elective,  with  a  tendency  to 
intellectual  stagnation  and  the  impairment  of  business 
vigour. 

If  one  of  your  Directors  has  become  incompetent  or 
ineligible,  by  reason  of  age  or  infirmity,  or  any  other 
cause,  it  is  not  only  the  right  but  the  duty  of  the  share- 
holders to  replace  him ;  but  if  the  infusion  of  fresh 
blood  is  to  be  achieved  by  the  discharge  of  able  and 
experienced  men,  for  the  mere  sake  of  change,  or  the 
gratification  of  furtive  ambition,  such  a  course  on  the 
part  of  shareholders  may  be  as  unwise  as  it  would  be 
ungenerous.  It  may  involve  the  dismissal  from  their 
service  of  gentlemen,  who  are  possessed  of  a  knowledge 
of  the  accounts  and  business  of  the  Bank,  which  it  has 
taken  them  many  years  to  acquire  ;  in  order  that  their 
seats  may  be  taken  by  other  gentlemen,  who  for  some 
years  to  come,  can  have  no  reliable  knowledge  of  the 
accounts  or  business,  or  the  general  working  and  policy 
of  the  Bank. 

No  shareholder  would  adopt  a  policy  of  change  like 
this  in  the  conduct  of  his  own  business.  He  would  not 
dismiss  tried  and  experienced  hands,  in  order  to  re- 
place them  with  the  unskilled  and  inexperienced,  for  the 
pure  love  of  change. 

Even  where  a  Director  has  to  retire  for  the  year  only, 
his  retirement  involves  a  certain  waste  of  power.  When 
he  returns  to  office,  his  mind  will  have  become  a  blank 
in  respect  of  the  operations  of  the  Bank  for  a  whole 
twelve  months.  Not  a  single  bill  will  be  in  the  bill-case 
which  was  in  that  repository  at  the  date  of  his  retirement, 
nor  will  the  position  of  a  single  account,  in  all  proba- 
bility, be  exactly  what  it  was.    The  continuity  of  his 

V  s 


292  The  Country  Banker,         [let.  xxxix, 

knowledge  of  the  daily  transactions  of  the  Bank  in 
bills  and  advances  will  have  been  broken,  and  he  will 
consequently  return  to  the  Board  with  his  usefulness  in 
council  proportionately  impaired. 

There  are  those,  it  is  true,  who  deem  themselves  quali- 
fied, at  a  moment's  notice,  to  undertake  the  management 
or  chief  direction  of  a  bank,  without  any  previous  training 
in  the  conduct  of  a  business  which  is  liable  beyond  all 
others  to  swift  destruction  in  inexperienced  hands.  And 
to  this  cause  are  mainly  to  be  assigned  the  past  calamities 
of  banking  on  both  sides  the  Tweed.  Our  bank  failures, 
without  exception,  have  been  the  result  of  either  a 
deplorable  ignorance,  or  a  culpable  disregard  of  the  first 
principles  of  every-day  banking.  So  far  from  the 
control  or  management  of  a  bank  being  a  thing  which 
anyone  can  understand  at  sight,  there  is  perhaps  no 
business  more  difficult  of  ready  grasp.  I  have  given 
a  long  business  life  to  the  practice  and  study  of  it, 
but  do  not  look  upon  my  education  as  even  yet  com- 
plete. Every  now  and  again  I  still  come  upon  some- 
thing new — some  fresh  'wrinkle ' — some  side-light,  which 
goes  to  enlarge  or  qualify,  sometimes  to  upset,  old 
and  cherished  impressions,  and  to  divest  experience  of 
finality. 

Your  shareholders  will  do  well,  therefore,  to  have  as 
few  amateur  financiers  on  the  Board  at  any  one  time  as 
may  be.  Vacancies  in  your  direction  will  arise  in  the 
natural  course  of  things,  with  sufficient  frequency  to 
prevent  mental  stagnation  at  the  Board,  and  these  must 
necessarily  be  filled  up  with  *  fresh  blood.'  Such  vacan- 
cies will  be  wide  enough  apart,  to  ensure  at  all  times  a 
majority  of  experienced  men  on  your  Direction  ;  so  that 
the  'prentice  hands  upon  it  may  have  time  to  master_ 
some  of  their  duties  before  they  rise  to  command.  ■ 

To  force  the  hand  of  time,  and  anticipate   natural™ 
change  in  this  matter,  is  to  venture  upon  a  game  of 
administrative  hazard.     You  can  inject  fresh  blood  by 
force  into  the  veins  of  your  Board,  no  doubt,  and  thereby 
stimulate  it  to  greater  action  ;  but  it  does  not  follow  that 


LIT.  xxxrx.)  The  Directorate  293 

it  will  be  a  healthy  action.  It  is  just  as  likely  to  result  in 
friction  and  a  war  of  opinion  betwixt  the  old  lights  and 
the  new.  Your  Board  might  thus  become  divided 
against  itself,  and  that  uniformity  of  principle  in  the 
action  of  the  Bank,  which  is  of  supreme  importance  to 
its  highest  interests,  would  be  jeopardized.  The  decision 
of  to-day  might  be  upset  by  the  vote  of  to-morrow — the 
policy  of  one  period  by  the  reverse  policy  of  another. 
The  management  of  the  Bank  might  thus  become 
uncertain  and  capricious.  Your  constituents  would  never 
rightly  know  how  they  stood  with  you,  nor  what  to  rely 
upon.  If  this  should  happen,  they  will  be  apt  in  time  to 
seek  elsewhere  for  that  steadfastness  of  purpose  in  the 
direction  of  a  bank,  which  is  essential  to  the  smooth 
working  of  their  own  business  arrangements. 

There  is,  no  doubt,  as  you  observe,  a  feeling  in 
some  minds  that  the  accounts  of  Directors  had  better  be 
kept  at  any  other  bank  than  their  own.  It  is  urged 
that  they  ought  not  to  sit  in  judgment  on  their  own 
accounts. 

But  the  grounds  for  this  objection  are  more  fanciful 
than  real.  It  is  not  to  be  supposed  that  the  Director  of 
a  bank  would  ever  seek  better  terms  for  himself  than 
would  be  granted  to  any  other  customer.  But,  \i  he 
should,  his  colleagues  would  surely  have  the  moral 
courage  to  refuse  him  ?  They  would  hardly  expose  them- 
selves to  the  taunt  that  they  favoured  themselves  more 
than  they  favoured  other  people.  For  this  reason  alone, 
no  Director  is  likely  to  seek  abnormal  advances  on  ex- 
ceptional terms  for  himself;  and  if  he  did,  no  Board, 
nowadays,  with  the  inevitable  yearly  audit  of  the  books 
and  accounts  before  them,  would  dare  to  listen  to  him. 
If  a  Director  will  comply  with  the  rules  of  the  Bank,  as 
regards  security  and  all  other  conditions,  so  that  his 
account  shall  be  as  safe  and  profitable  as  any  othei 
account  of  its  class,  there  can  be  no  reason  for  his 
keeping  it  elsewhere.  On  the  contrary,  his  own  Bank 
has  clearly  the  first  claim  to  it 


294  -^^^  Cotintry  Banker.         [let.  xxxix. 

Once  in  every  year,  accompanied  by  two  of  your 
Directors,  who  take  the  duty  by  rotation,  you  make  a 
round  of  visits  to  your  Branches,  in  order  to  check  the 
cash,  and  investigate  the  accounts  bills  and  securities  of 
each  Branch  on  the  spot. 

The  Board  as  well  as  yourself  arrive  in  this  way  at  a 
personal  knowledge  of  your  chief  provincial  customers, 
who  must  otherwise  remain  to  you  mere  human  abstrac- 
tions, with  no  more  character  or  individuality  about  them 
than  their  names  and  avocations  afford  in  the  index  to 
your  ledgers.  Instead  of  mere  headings  of  ledger  folios 
alphabetically  arranged,  they  will  thus  become  living 
entities,  with  whom  you  will  have  largely  improved  your 
chances  of  intelligent  dealing  and  mutual  business  satis- 
faction in  the  future. 

The  majority  of  your  customers  will  approve  of  being 
thus  looked  up,  although  some  few  may  have  substantial 
reasons  for  disliking  it  extremely.  The  major  part  will 
have  a  pride  in  feeling  that  their  accounts  will  bear  the 
closest  scrutiny  in  the  strongest  light.  They  will  deem 
it  a  compliment,  moreover,  that  your  Directors  and  your- 
self should  come  amongst  them  once  a  year,  to  see  how 
things  are  getting  on  in  'the  old  place;'  and  a  compli- 
ment paid  to  their  native  borough  touches  their  municipal 
bosoms  with  a  pleasing  elation. 

These  visits,  moreover,  enable  you  to  revise  and  rectify, 
from  time  to  time,  your  record  of  the  business  capacities 
of  the  Managers  and  other  members  of  your  provincial 
staff.  You  will  find  some  diligently  forging  ahead,  in 
knowledge  and  ability,  others  standing  where  they 
stood,  and  some  few  you  may  discover  losing  ground,  it 
may  be  from  age  or  from  other  causes. 

With  a  customer's  ledger  account  before  you,  and  its 
daily  working  exposed  to  view,  you  have  an  unrivalled 
opportunity  of  putting  a  Branch  Manager  through  his 
facings.  In  many  accounts,  items  will  stand  out  from 
the  rest,  in  regard  to  which  you  will  look  to  him  for  en- 
lightenment. You  will  desire  to  know  what  such  trans- 
actions mean.     You  will  expect  him  to  read  them  for 


LET.  XXXIX.]  The  Directorate.  295 

you — to  explain  where  the  money  they  represent  came 
from,  or  whither  it  went,  and  the  why  and  the  where- 
fore, as  the  case  may  be. 

While  you  thus  give  an  excellent  fillip  to  his  under- 
standing and  memory,  the  comparative  readiness,  fulness, 
and  ability  with  which  he  shall  answer  your  questioning, 
will  assist  you  in  assigning  to  him  his  just  rank  in  your 
official  scale  of  merit. 

Moreover,  these  periodical  visits  will  have  a  wholesome 
effect  in  keeping  the  rank  and  file  of  your  country  staff 
up  to  standard.  It  will  be  their  natural  desire  to  pass 
as  efficients.  If  they  find,  therefore,  that  you  are  not 
above  taking  cognizance  even  of  small  things,  and  that 
you  take  especial  note  of  careless  handwriting,  blotted 
books,  frequent  erasures,  and  waste  and  muddle  wherever 
found,  the  Deputation  will  administer  a  tonic  which  will 
have  a  distinctly  bracing  effect.  The  delinquents  will 
have  an  eye  to  next  salary  Board,  and  will  not  imperil 
their  chances  at  that  tribunal  by  persistence  in  habits, 
in  respect  of  which  you  have  left  them  in  unequivocal 
possession  of  the  sentiments  of  the  Board  and  yoursclC 


LETTER    XL. 

THE   RIGHTS   AND    DUTIES    OF   SHAREHOLDERS, 

There  is  no  defence  in  walls ^  fortifications ^  and  engines  against 
the  power  of  Fortune ;  we  must  provide  ourselves  within,  and 
when  we  are  safe  there^  we  are  invincible ;  we  may  be  battered ^ 
but  not  taken.  L'Estrange's  Seneca. 

When  a  man  becomes  a  shareholder  in  a  bank  he 
becomes  to  all  intents  and  purposes  a  co-partner  in  the 
business  transacted  by  It  He  is  as  much  concerned  in 
its  success,  to  the  extent  of  his  holding,  as  if  the  business 
were  his  own.  The  fact  that  he  is  only  one  partner 
amongst  hundreds  or  thousands,  as  the  case  may  be, 
neither  releases  him  from  responsibility,  nor  affects  his 
rights  as  member  of  a  co-partnership.  He  has  joined  a 
firm,  no  doubt  a  large  one,  in  point  of  numbers  ;  but  he 
is  just  as  much  a  member  of  it,  as  if  his  fellow-partners 
numbered  only  two  or  three. 

It  is  necessary  to  press  this  point — obvious  and  com- 
monplace as  it  may  seem — because  it  has  yet  to  be 
realized  by  many  whom  it  largely  concerns.  There  are 
shareholders  to  be  found  here  and  there,  to  whom  their 
own  Bank  would  appear  to  be  a  hostile  institution,  which 
it  is  their  business  to  attack  on  the  slightest  pretext.  The 
Naggleton  of  your  annual  meetings  quarrels  with  the  Rest 
as  too  large,  or  with  the  profits  as  too  small.  He  quarrels 
with  your  Report.  It  is  too  concise ;  he  wants  to  know  a 
great  deal  more  than  what  it  tells  him.  He  is  disappointed 
with  the  dividend,  and  objects  to  the  balance  carried 
forward  to  next  year  as  excessive.  He  cannot  under- 
stand why  the  District  Union  Bank  pays  only  15  per 
cent,  when  it  is  well  known  that  other  banks  pay  17  J 


LET.  XL.]      Rights  a7id  Duties  of  Shareholders.     297 

or  20.  There  must  be  bad  management,  or  inexcusable 
losses,  or  an  over-salaried  staff,  or  something. 

This  line  of  hostile  remark  is  lawful  to  every  share- 
holder, but  it  is  not  always  expedient.  In  easy  times, 
this  splenetic  indulgence  in  adverse  criticism,  although 
it  is  impossible  to  sec  what  good  can  come  of  it,  may  be 
unproductive  of  harm  ;  but  in  times  of  monetary  excite- 
ment, when  the  air  is  filled  with  rumour  to  the  prejudice 
of  banks,  and  whispers  are  heard  of  looming  difficulties 
and  impending  disaster,  such  a  line  of  questioning  rebuke 
may  be  mischievous. 

When  such-like  rumours,  always  dubious  of  birth,  and 
sometimes  malignant  of  purpose,  reach  the  ears  of  a 
shareholder,  it  is  at  once  his  duty  and  his  interest  to 
communicate  with  the  nearest  Manager  of  the  Bank,  in 
the  first  instance,  and  ascertain  the  truth.  For  him  to 
stand  up  at  one  of  your  Bank  meetings  at  such  a  time, 
without  notice,  to  ask  if  it  be  true  that  you  have  lost  a 
hundred  thousand  by  Blank  &  Co.,  and  another  fifty 
thousand  by  Cypher  Bros. — both  of  which  rumours  are 
either  sheer  inventions  or  monstrous  exaggerations — is 
only  to  play  into  the  hands  of  the  inventor  of  the  calumny 
and  give  wings  to  his  malevolence.  The  very  putting  of 
such  a  question  carries  imputation  with  it.  The  evil- 
minded  will  conclude  that  there  must  be  something  in 
it,  with  whatever  emphasis  of  contradiction  you  may 
denounce  it. 

Even  more  mischievous  may  be  the  question  put  by 
some  other  reckless  querist,  who  desires  to  know  whether 
there  is  a  run  going  on  upon  some  of  your  Branches. 
The  rumour  may  be  as  groundless  as  the  other ;  but 
even  if  it  were  true,  and  it  is  thus  proclaimed  throughout 
your  district  that  some  of  your  Branches  are  being  run 
upon,  it  would  hardly  be  matter  for  surprise  if  they  were 
all  more  or  less  run  upon  before  a  week  was  out.  The 
force  of  example  is  in  nothing  more  absolute  than  in  a 
run — it  spreads  with  the  swiftnes.^  and  virulence  of 
contagion. 

I  repeat,  —that  whatever  a  shareholder  may  at  any  time 


298  The  Country  Banker,  [let.  xl, 

hear  to  the  prejudice  of  his  own  Bank,  it  is  not  merely 
his  interest,  but  his  bounden  duty,  to  convey  the  rumour 
in  the  first  instance  privately  to  the  Manager,  and  not 
primarily  to  his  fellow  shareholders  in  public  meeting 
assembled.  '  It  is  an  infatuated  bird  that  fouls  its  own 
nest' 

Not  that  I  would  circumscribe  by  the  breadth  of  a 
hair  the  privilege  of  shareholders  to  ask  questions  on 
points  concerning  their  own  interests :  they  have  a 
right  to  know  the  truth,  whatever  it  may  be,  and  it 
will  be  the  duty  of  the  Board  and  yourself  to  reveal 
the  truth  to  them  at  all  times  without  circumlocution  or 
evasion.  I  would  merely  have  a  shareholder  to  beware  of 
asking  questions  in  public  to  his  own  detriment,  which 
he  might  with  equal  ease  and  with  more  than  equal 
advantage  ask  in  private.  No  doubt  there  are  questions 
which  it  may  be  politic  for  a  shareholder  to  put  to  you 
publicly,  in  order  that  you  may  publicly  answer  them  ; 
but  he  should  be  well  assured  of  this  before  putting 
them  ;  otherwise  it  may  happen  that  in  seeking  to  do 
the  Bank  service,  he  may  do  it  grievous  injury. 

The  shareholder  afflicted  with  that  form  of  eccentricity 
which  incites  him  to  intermittent  attacks  on  his  own 
property,  has  his  counterpart  in  the  man  in  Hogarth's 
picture,  who  is  sawing  through  the  perch  on  which  he 
is  himself  astride. 

Mr.  Naggleton  is  at  times  moved  with  a  desire  to 
know  the  exact  amount  of  bad  debts  which  you  have 
made  during  the  twelve  months  covered  by  your  state- 
ment of  profits. 

If  your  losses  have  been  of  abnormal  amount,  you 
will  not  wait  for  such  a  question  to  be  put, —you  will 
anticipate  it :  but  with  regard  to  your  ordinary  annual 
provision  against  loss,  you  cannot  enter  into  particulars 
with  him.  You  set  aside,  out  of  profits  every  year,  a 
sum  which  will  not  only  cover  ascertained  bad  debts, 
but  which  shall  provide  for  contingent  losses  as  well — 
for  losses  which  are  not  yet,  but  which  may  be.     Look- 


I 


J 


L«T.  XL.]      Rights  and  Duties  of  Shareholders.  299 

ing,  for  example,  at  your  holding  of  bills  arising  out  of 
any  particular  trade  or  industry,  in  which  it  is  known 
that  heavy  losses  have  been  sustained,  your  Directors, 
without  being  able  to  single  out  any  one  bill,  or  series 
of  bills,  as  likely  to  involve  loss,  might  deem  it  prudent 
nevertheless  to  set  aside  a  sum  in  blank,  so  to  speak,  to 
cover  such  eventualities.  But  this  is  a  point  upon  which 
your  Report  would  properly  be  silent :  you  could  not 
refer  to  it,  without  saying  either  too  little  or  too 
much.  If  too  much,  the  credit  of  individuals  might  be 
compromised  ;  if  too  little — if  you  merely  hinted  that 
such  provision  had  been  made — there  would  be  no 
limit  to  conjecture  on  the  subject.  The  amount 
you  hold  of  such  bills  would  first  be  guessed  at,  then 
steadily  exaggerated,  and  finally  enlarged  to  an  alarm- 
ing total 

For  these  reasons,  and  for  others,  your  shareholders 
will  do  wisely  to  leave  this  particular  point  at  all  times 
in  the  hands  of  the  Board.  Let  them  rest  content  with 
the  declaration  of  your  balance-sheet,  signed  by  three 
members  of  your  Board  and  countersigned  by  yourself,^ 
that  before  striking  the  balance  of  profits  for  the  year, 
you  have  made  ample  provision  for  every  bad  and 
doubtful  debt, — a  declaration  which,  if  proved  to  be 
knowingly  false,  will  subject  its  authors  to  one  or  other 
of  a  range  of  penalties,  the  lightest  of  which  would  be 
an  unsupportable  penance  and  degradation."^  It  is  be- 
yond belief  that  rational  men  would  brave  the  risk  of 
such  consequences,  rather  than  frankly  confess  to  an 
exceptional  run  of  disaster  and  a  consequent  reduction 
of  their  customary  rate  of  dividend. 

When  a  heavy  local  failure  takes  place,  which  aflfords 
irresponsible  gossip  a  genial  topic  for  reckless  guess- 
work and  mischievous  suggestion,  it  will  be  wise  to 
advise  your  Branches  at  once  how  you  stand  affected 

*  Penal  icrvitude  for  *ny  term  not  exceeding  seven  years  and  not  less 
than  three  years,  at  the  discretion  of  the  Court :  or  imprisonment  for  any 
term  not  exceeding  two  years,  with  or  without  hard  labour  and  with  oi 
without  solitary  confinement  [24  and  25  Vict  chap.  96]. 

»  See  footnote  » to  p.  239. 


300  The  Country  Banker,  [let.  xl. 

by  the  failure  ;  otherwise  your  Managers  will  be  unable 
to  contradict  any  edition  of  the  facts,  however  damaging, 
which  may  reach  the  too  receptive  ears  of  the  more 
timid  of  your  proprietary. 

The  shareholder  in  a  Bank  is  a  partner  in  a  business 
which,  to  the  extent  of  his  holding,  is  carried  on  for  his 
benefit  The  greater  the  profits,  the  larger  his  dividend. 
It  is  a  duty  which  he  owes  to  himself,  therefore,  to  seek 
to  increase  the  business  and  thereby  add  to  the  profits 
of  the  institution. 

There  are  still  in  many  districts  numbers  of  people  who 
have  never  yet  *  kept  a  banker.'  These  are  thej  who 
should  move  the  special  solicitude  of  the  Bank  share- 
holder ;  this  is  the  quarry  in  which  he  should  work.  It 
is  his  business  to  search  out  and  bring  the  bankless  in. 
True,  he  is  only  one  partner  amongst  a  thousand  others 
in  your  Bank ;  but  that  does  not  release  him  from  the 
obligation  of  doing  what  he  can  for  the  common  good. 
Let  him  bring  only  one  fresh  customer  to  the  Bank  in 
the  course  of  every  twelvemonths,  and  let  us  put  the 
addition  thus  made  to  your  revenues  at  the  modest 
figure  of  twenty  shillings  a  year,  and  let  each  of  your 
shareholders  do  the  same  ;  and  the  result,  in  the  course  of 
five  years,  will  be  an  increase  of  ;^  5000  a  year  in  your 
profits;  or  an  addition  of  i^  per  cent,  to  your  annual 
dividend. 

This  appears  to  you  an  over-estimate.  You  say  that 
in  your  proprietary  hive  at  Oxborough  the  drones  out- 
numbered far  the  workers.  But  the  extra  activity  of  the 
working  few  will  sometimes  prove  a  set-off  to  the  indo- 
lence of  the  do-nothings,  and  the  tale  of  expected  work 
be  thus  made  up. 

But  to  put  the  matter  differently  :  let  us  suppose  that 
through  the  combined  exertions  and  influence  of  your 
customers  and  shareholders  at  Oxborough,  a  fresh 
account  or  deposit  came  to  your  Branch  there  only  once 
in  ten  days  t  You  will  hardly  regard  this  as  an  ex- 
travagant estimate  :  but  the  result  would  be  thirty  new 


L«T.  XI.]     Rights  and  Duties  of  Shareholders,  301 

accounts  or  deposits  in  the  course  of  the  year  for 
Oxborough  Branch,  and  consequently  nine  hundred  for 
your  Branches  as  a  whole. 

As  we  have  seen,  the  profits  of  banking  are  in  a  great 
measure  made  up  of  inconsiderable  particles.  The 
shareholders  in  Banks  therefore  are  not  to  disregard  the 
worth  of  small  things,  and  because  they  cannot  do  much, 
conclude  to  do  nothing.  Pence  and  farthings,  as  well 
as  pounds  and  shillings,  go  to  swell  the  annual  aggre- 
gate of  Bank  profits. 

In  times  of  panic,  it  is  the  special  duty  of  a  share- 
holder to  stand  by  his  own  Bank.  If  he  saw  his  own 
house  on  fire,  he  would  at  once  seek  to  put  out  the 
flames.  If  he  sees  the  Bank  in  which  he  is  a  proprietor 
attacked,  with  all  the  forces  of  panic  fighting  on  the  side 
of  the  assailants,  it  is  surely  his  duty  to  lift  a  hand  in 
defence  of  his  own  property. 

If  timid  and  foolish  people  are  running  for  their 
deposits,  a  man  of  wealth  and  influence  might  be  able 
to  reassure  many  and  disabuse  them  of  their  fears.  He 
would  not  overstep  the  limits  of  discretion  if,  in  cases 
when  depositors  have  ceased  for  the  moment  to  be 
accountable  beings,  he  should  even  offer  to  guarantee 
their  deposits;  for  which  the  assets  of  the  Bank  would 
be  for  him  an  ample  cover  and  indemnity.  And  what 
the  rich  and  powerful  amongst  shareholders  might  do, 
others  less  affluent  or  influential  might  do,  each  to  the 
extent  of  his  ability,  even  if  that  were  limited  to  turning 
the  alarms  of  the  timid  into  ridicule,  and  laughing  panic 
Dut  of  countenance. 

Nevertheless,  incredible  as  it  may  seem,  it  is  at  a 
critical  time  like  this,  that  one  of  your  shareholders 
loses  his  head  and  throws  his  fifty  shares  on  the  market 
for  instant  sale,  thus  causing  a  rapid  fall  in  their  market 
price.  It  would  be  in  vain  to  represent  to  a  person  thus 
possessed,  that  the  worst  time  to  sell  shares  is  when 
there  are  no  buyers.  His  one  object  is  to  'get  out,'  let 
the  price  go  to  what  it  will ;  and  when  he  has  driven  it 


302  The  Country  Banker,  [let.  xl. 

down  some  £^  a  share,  some  one  finds  courage  perhaps 
to  come  forward  and  relieve  him  of  his  holding. 

Now  no  one  would  object  to  his  parting  with  his 
shares  at  any  sacrifice,  provided  he  were  the  only  sufferer. 
But  in  forcing  a  sale  of  his  fifty  shares,  he  has  brought 
the  price  of  all  the  shares  held  by  his  co-proprietors 
down  to  the  level  of  his  own.  He  has  emancipated 
himself  by  inflicting  six  hundred  times  his  own  loss 
upon  others.  Against  his  loss  of  ;^25o,  you  have  to 
place  a  drop  in  the  value  of  his  neighbours'  property 
to  the  extent  of  ;^  150,000. 

And  the  mischief  may  not  end  here  ;  other  nervous 
shareholders,  seeing  the  rapid  fall  in  the  price  of  your 
shares,  may  likewise  take  fright,  and  your  bell-wether  be 
followed  by  a  score  of  sheep  like  himself.  Fresh  batches 
of  shares  may  thus  be  thrown  upon  the  market  and  the 
price  thrust  further  down. 

The  unexampled  fall  in  the  price  of  your  stock  will 
not  escape  the  notice  of  the  outside  public ;  and  if  it 
leads  them  to  the  conclusion  that  its  own  shareholders 
have  lost  confidence  in  the  Bank,  who  shall  blame  them  } 
But  such  an  impression,  should  it  seize  upon  the  minds 
of  your  depositors,  at  a  time  when  banking  credit  is  at  a 
severe  point  of  tension,  might  bring  them  upon  you  in 
swarms.  True,  you  are  always  prepared  and  ready  for 
the  worst.  With  such  a  balance-sheet  as  yours,  you 
may  set  any  run  at  defiance.  But  a  weaker  bank, 
suddenly  assailed,  might  be  overwhelmed  in  this  way — 
stricken  down  by  the  hand  of  one  of  its  own  co- 
partners. In  his  frantic  haste  to  set  himself  free,  he  will 
have  brought  the  fabric  about  his  own  ears.  Should 
this  be  the  result,  there  will  be  few  to  pity  his  dismay, 
when  he  finds  that  the  sale  of  his  shares  has  not  released 
him  from  liability  upon  them  for  twelve  months  to  come. 
It  will  then  come  home  to  him,  when  it  is  too  late,  that 
in  his  selfish  haste  to  free  himself  from  responsibility,  at 
the  expense  of  others,  he  has  brought  upon  himself  the 
very  calamity,  from  which  it  was  his  fervent  hope  and 
effort  to  escape. 


i.«T.  XL.]     Rights  and  Duties  of  Shareholders,  303 

The  shareholders  in  banks,  if  they  would  act  wisely 
for  themselves,  will  never  attempt  a  sale  of  their  shares 
in  a  time  of  panic. 

Even  in  ordinary  times,  the  shares  of  a  Country  Bank 
are  not  ready  of  sale.  A  capital  represented  by  a  few 
hundred  thousand  pounds  comes  to  a  different  market 
from  that  which  is  commanded  by  a  capital  reckoned  by 
tens  of  millions.  You  can  sell  London  and  North 
Western  stock  any  day  throughout  the  year  at  the 
quoted  price  of  the  day,  because,  in  proportion  to  the 
magnitude  of  the  stock  is  the  never  failing  stream  of  its 
purchasers ;  but  the  shareholders  in  a  Country  Bank, 
are  comparatively  few  in  number,  and  the  buyers  far 
between. 

If  a  fear  has  been  put  into  the  minds  of  any  of  its 
shareholders  as  to  the  soundness  of  a  Bank,  let  them 
refer  the  matter  to  the  nearest  Manager  and  have  it 
cleared  up  at  once.  They  will  thus  at  least  give 
themselves  the  benefit  of  the  doubt.  By  forcing  a 
sale  of  their  shares  in  the  midst  of  a  money  crisis, 
they  may  render  the  catastrophe  certain,  which  is 
as  yet  only  in  apprehension.  They  may  get  rid  of 
their  shares ;  but  in  doing  so  they  may  get  rid  of 
the  Bank  itself,  and  thus  end  their  flight  from  responsi- 
bility at  the  bottom  of  a  precipice. 

And  whilst  you  have  sometimes,  as  we  have  seen,  to 
reckon  with  mutiny  within  the  camp,  you  are  exposed  to 
other  forms  of  attack  from  without.  You  will  not  always 
escape  calumny ;  and  your  assailant  will  bide  his  time 
to  give  it  utterance  at  the  right  moment.  The  Bank's 
difficulty  will  be  his  opportunity. 

You  hold  that  the  man  who  would  of  malice  afore- 
thought seek  to  wreck  a  solvent  Bank,  has  much  the 
same  claim  to  virtuous  motive,  as  the  ruffian  has  who 
would  blow  up  a  public  building.  The  difference  between 
the  two,  you  submit,  is  merely  in  degree.  The  minor 
offence  would  not  involve  risk  to  human  life :  it  would 
only  render  life  not  worth  living,  to  hundreds  of  innocent 
people. 


304  The  Country  Banker,  [let.  xl. 

But  calumny  would  be  harmless  if  it  were  not  spread 
about.  Do  not  give  it  circulation,  and  it  will  fall  dead 
from  the  lips  of  the  traducer.  It  is  therefore  the  special 
duty  of  all  shareholders  in  banks,  to  abstain  from  the 
repetition  of  rumours  to  the  prejudice  of  banking  insti- 
tutions, especially  in  times  of  monetary  anxiety  and 
alarm. 

Your  proprietors  ought  rather  to  act  as  the  guardians 
and  police  of  banking  credit.  The  people  who  glibly 
pass  from  mouth  to  mouth,  slanders  that  might  impair 
the  standing  of  any  credit  institution,  do  so  for  the  most 
part  without  evil  intention ;  but  whether  a  bank  is 
brought  down  with  intention  or  without,  the  result  to  its 
shareholders  is  equally  cruel  and  disastrous. 

The  failure  of  a  Bank,  moreover,  in  the  midst  of  a 
monetary  crisis,  adds  fresh  fuel  of  alarm  to  the  prevail- 
ing excitement,  and  may  cause  runs  upon  other  banks  to 
their  undoing ;  and  thus  the  banking  system  of  a  whole 
district  might  be  brought  to  a  standstill.  If  this  should 
come  to  pass,  the  predictions  of  evil  ss  /ecklessly  scat- 
tered by  your  gad-abouts,  will  have  come  home  to  roost. 
If  any  of  these  persons  shall  happen  to  be  depositors  in 
one  or  other  of  the  suspended  banks,  they  will  have 
locked  their  own  as  well  as  their  neighbour's  money  up, 
more  or  less  effectually,  for  an  unknown  period.  If 
borrowers  from  the  Banks  or  discounters  with  them,  they 
will  have  destroyed  the  sources  of  such  facilities  and  may 
have  to  come  to  a  stand-still  themselves— a  result  which 
most  people  will  look  upon  as  a  righteous  judgment.  If 
they  shall  prove  to  be  shareholders  in  any  of  the  Banks, 
they  will  have  ruinously  depreciated  the  value  of  their  own 
property.  The  stranglers  of  credit  may  thus  find  the 
noose  tightening  about  their  own  necks.  In  any  event, 
they  will  have  helped  to  bring  about  a  disaster,  which 
will  subject  thousands  of  people  in  trade  to  serious  in- 
convenience,— it  may  be  to  wearing  anxieties  and  ruinous 
business  loss;  whilst  scores  of  hardworking  clerks  and 
officials,  their  wives  and  families,  will  be  cast  helpless 
upon  the  world. 


utT.  XL.)    Rights  and  Duties  of  Shareholders,    305 

*  There  is  a  generation  of  men/  observes  an  old  writer, 
'with  whom  it  is  a  custom  to  clack  out  anything  their 
heedless  fancy  springs,  who  are  so  habituated  to  false- 
hood that  they  can  outlie  an  Almanack,  or,  what  is  more 

— a  Chancery  bill I  would  sooner  pardon  some 

crimes  which  are  capital,  than  this  wildfire  of  the  tongue, 
which  whips  and  scorches  wheresoever  it  alights.' 

Unfortunately  you  cannot  limit  the  consequences  of 
the  stoppage  of  a  bank,  to  those  who  bring  the  structure 
down  about  their  own  cars.  A  bank — especially  a  bank 
with  numerous  Branches — has  wide  ramifications : 

//  is  a  massy  wheel 
To  whose  huge  spokes  ten  thousand  lesser  things 
Are  mortised  and  adjoined  ;  which,  when  it  fails, 
Each  small  annexment,  petty  consequence, 
Attends  the  boisterous  ruin. 

Whatever  the  defects  of  our  monetary  system  may  be,  it 
is  at  least  one  of  the  cheapest  in  the  world.  In  no  other 
country  is  banking  accommodation  obtained  on  more 
favourable  terms,  either  as  respects  amount  or  rate  of 
charge.  Our  Banks  have  to  deal  continuously  with  some 
500  millions  of  unemployed  capital,  which  they  have 
received  from  one  portion  of  the  community  and  lent  to 
another;  added  to  which  they  lend  some  150  millions  of 
capital  of  their  own. 

Even  these  figures  give  but  a  faint  notion  of  the  mag- 
nitude and  movement  of  our  monetary  operations,  or 
what  the  suspension  of  the  stupendotis  machinery  of 
credit  for  a  single  day  would  signify. 


LETTER    XLI. 

THE   FUTURB    OUTLOOK.^ 

7%i  Golden  Age,  it  is  but  too  truCy  is  not  the  lot  of  the  gene- 
ration in  which  we  live  ;  but  if  it  is  to  be  found  in  any  part  of 
the  track  marked  out  for  human  existence,  it  will  be  founds  J 
trust,  not  in  any  part  which  is  past,  but  in  some  part  which  is 
to  come.  Defence  of  Usury. 

In  dealing  with  possible  fluctuations  in  the  aggregate 
of  your  deposits,  we  assumed  a  maximum  pressure  of  lo 
per  cent.,  or  the  withdrawal  of  ;^25o,ooo  of  the  whole. 

For  nine  years  out  of  ten,  looking  at  the  past,  this  will 
probably  exceed  their  utmost  point  of  depletion  ;  but  if 
the  tenth  year  be  visited  with  a  commercial  crisis,  com- 
bined with  a  money  panic,  the  average  level  of  your 
deposits  may  suffer  a  more  serious  depression. 

You  ask,  as  regards  this  decennial  year  of  affliction, 
what  of  the  future  ?    Will  things  continue  to  move  in 

1  This  chapter,  it  will  be  seen,  is  devoted  largely  to  advice  as  to 
the  steps  which  should  be  taken  by  banks  so  to  strengthen  their 
position  and  direct  their  ordinary  policy  that,  when  times  of  com- 
mercial crisis  recur,  their  effect  may  be  minimized,  and  to  a  criticism 
of  the  monetary  policy  embodied  in  the  Bank  Act  of  1844.  The 
advice  given  is  sound,  and  the  fact  that  the  deposits  of  the  banks  in 
tkc  United  Kingdom  at  the  cad  of  19 16  amounted  to  no  less  than 
j^i, 427,457,000 — an  amount  very  considerably  increased  during 
191 7 — emphasizes  the  author's  points.  His  remarks  on  the  working 
of  the  Bank  Act  fairly  represent  the  body  of  financial  opinion  which 
regards  the  operation  of  the  Act  as  unfortunate  in  times  of  panic,  but 
one  of  the  effects  of  the  War  has  been  to  divert  attention  to  quite 
another  set  of  problems,  some  of  which  are  referred  to  in  the  intro- 
duction to  the  present  edition.  Without  following  the  author  into 
the  figures  given,  his  points  in  this  chapter  may  be  summarized  as 
{i\  advice  to  bankers  to  keep  their  resources  liquid  at  all  times,  and 
(2)  advocacy  of  an  amendment  of  th«  Bank  Act  iii  the  direction  of 
greater  elasUcit/. 


LET.  xLi.j  The  Future  Outlook,  307 

the  same  grooves  as  heretofore,  and   each  decade  be 
rounded  off  by  a  paroxysm  in  the  money  market  ? 

It  is  hard  to  say :  we  can  do  little  more  than  set 
before  our  minds  the  leading  elements  of  the  problem. 
We  can  inquire  of  the  past  in  what  it  differs  from  the 
present,  and  of  both  what  guidance  they  have  for  us  in 
the  future;  but  to  give  a  categorical  answer  to  your 
question  would  require  the  gift  of  prophecy. 

As  regards  the  present,  then,  we  are  still  working  our 
monetary  system  on  practically  the  same  basis,  in  respect 
of  gold,  as  when  the  Act  of  1844  was  passed,  although 
the  deposits  of  the  Banks  have  since  then  more  than 
trebled  in  amount. 

It  is  true  that  the  reserves  of  th<5  Banks,  namely  the 
amount  of  Bank  of  England  notes,  and  coin  in  hand, 
money  at  call  and  Consols,  have  largely  increased,  and 
that  the  average  reserve  now  ranges,  as  we  have  seen, 
from  24  to  36  per  cent,  of  the  liabilities ;  but  only  a 
small  percentage  of  this  average  is  held  by  the  Banks  in 
gold.  A  recent  estimate  by  the  Coinage  Committee  of 
the  Institute  of  Bankers  places  the  liabilities  of  the 
Banks  at  575  millions,  and  the  gold  held  by  them  at 
25  millions,  or  4i  per  cent.*  This  is  the  golden  pivot 
on  which  the  vast  wheel  of  our  monetary  system 
revolves. 

It  is  beyond  dispute,  therefore,  that  if  the  Banks  were 
called  upon  to  discharge  their  indebtedness,  exclusively 
in  gold,  on  any  one  day,  the  transaction  would  be  im- 
possible ;  but  it  is  not  less  true  that  they  could  discharge 
the  whole  of  their  liabilities  to  the  public  in  far  less  time 
than  it  has  taken  to  build  them  up. 

It  is  a  property  of  money  to  create  or  cancel  debt ;  to 
convey  capital  or  money's  worth,  from  hand  to  hand, 
and  from  place  to  place,  with  endless  repetition,  without 
undergoing  diminution  itself.  It  is  the  common  carrier 
of  capital     Its  function  is  akin  to  that  of  the  railway 

*  Journal  of  Uic  Ixutitute,  Juae,  1883. 


3o8  The  Country  Banker.  [let.  xu. 

truck,  which  carries  its  customary  load,  performs  its 
appointed  run,  and  is  ready  for  any  additional  number 
of  loads  and  runs  which  may  be  required  of  it  The 
same  hundred  pounds  with  which  a  debt  is  cancelled,  a 
payment  made,  or  a  purchase  completed  to-day,  will 
suffice  for  similar  uses  to-morrow  and  for  any  series  of 
to-morrows.  If  it  changed  ownership  once  a  day,  it 
would  complete  operations  to  three  hundred  times  the 
sum  of  itself  in  the  course  of  a  year,  and  still  be  the 
same  ;^ioo  in  money,  and  ready  to  enter  upon  the  same 
endless  round  of  work. 

And  what  is  true  in  this  respect  of  a  hundred  pounds, 
is  equally  true  of  five-and-twenty  millions  of  pounds. 
They  will  suffice  to  cancel  twenty-five  millions  of  debt 
any  day  and  be  themselves  undiminished  by  the  process. 
Let  the  money  owing  to  Bankers  be  repaid,  in  exact 
ratio  and  coincidence  with  their  repayments  to  their 
depositors ;  and,  as  a  mere  matter  of  manipulation,  our 
holding  of  gold  would  alone  suffice  to  liquidate  our  575 
millions  of  banking  indebtedness  in  three-and-twenty 
days. 

But  this  is  mere  toying  with  figures.  The  process 
is  less  suggestive  of  a  sober  act  of  business,  than  of 
Bobadirs  method  of  destroying  an  army. 

The  realization  and  distribution  of  575  millions  of 
banking  assets,  in  a  given  number  of  days,  may  be 
demonstrable  as  an  exercise  in  arithmetic ;  but  looked 
at  in  a  practical  light,  such  an  operation  is  a  chimera, 
only  surpassed  in  extravagance  by  the  idea  that  the 
necessity  for  it  should  ever  come  to  pass.  The  imagined 
process  may  nevertheless  serve  to  shew,  how  the  con- 
structive property  of  money  enables  us,  as  a  community, 
to  run  into  a  mutuality  of  debt  and  aggregate  of 
liability,  so  far  beyond  the  amount  which  our  reserve 
of  gold  would  enable  us  to  discharge  at  any  one 
time. 

But  the  financial  skill  which  has  enabled  us,  as  a 
nation,  thus  to  economize  the  use  of  gold  well-nigh  to 
vanishing  point,  has  its  disadvantages. 


i*T.  XLL]  The  Future  Outlook.  ^09 

Whilst  the  public  mind  is  at  rest  concerning  monetary 
affairs,  the  immense  operations  of  banking,  trade  and 
commerce  go  evenly  and  swiftly  on  ;  money  passes 
readily  from  hand  to  hand,  and  the  currency  is  equal  to 
its  work :  and  by  currency  or  money  I  here  mean  Bank 
of  England  Notes  and  specie  only.  But  when  a  time 
of  discredit  supervenes,  the  circulative  power  of  the 
currency  becomes  impaired, — not  necessarily  from  any 
reduction  in  its  amount,  but  from  a  growing  indisposition 
on  the  part  of  holders  to  part  with  it  freely. 

It  follows  that  the  same  holding  of  currency  or  money, 
which  would  suffice  for  our  national  requirements  at  one 
time,  might  fall  perceptibly  short  of  these  at  another  : 
because  it  is  manifest  that  a  currency  which  changed 
hands,  let  us  say,  once  a  week,  would  complete  a  larger 
tale  of  work,  than  if  it  passed  from  hand  to  hand  only 
once  in  ten  days. 

And  this  is  virtually  what  happens  when  clouds 
appear  on  the  monetary  horizon  and  foreshadow  a  com- 
ing pressure.  That  visitation  is  usually  heralded  by  a 
heavy  fall  in  the  exchanges, — the  accredited  barometer 
of  the  money-market, — and  a  rapid  upward  movement  of 
the  Bank  rate.  The  enhancement  of  the  rate  has  some 
such  effect  in  retarding  the  movement  of  the  currency,  as 
the  application  of  the  brake  has  in  lessening  the  speed 
of  a  railway  train.  It  induces  Bankers  and  other 
holders  of  money  to  slacken  speed,  and  to  part  with 
their  funds  with  increasing  caution.  The  result  is  a 
*  tightness'  in  the  money  market,  the  initial  twinge, 
it  may  be,  of  approaching  panic. 

The  tightness  has  barely  made  itself  generally  felt, 
perhaps,  before  there  is  another  rise  in  the  rate ;  the 
feeling  of  uneasiness  is  enhanced,  and  the  disincli- 
nation on  all  hands  to  part  with  money  increases 
visibly. 

And  whilst  the  mobility  of  the  currency  is  thus  being 
impaired,  a  drain  of  gold  may  be  diminishing  its  volume. 
For  every  million  of  bullion  leaving  the  Issue  Depart- 
ment, a  million  of  Notes  may  be  undergoing  can- 
cellation. 


3IO  The  Country  Banker,  [let.  xli. 

Meanwhile  there  is  no  abatement  in  the  general 
demand  for  money.  The  business  commitments  of  the 
community  cannot  be  reduced  in  a  day.  The  merchant 
requires  his  bills  to  be  discounted,  and  his  existing  en- 
gagements to  be  met.  Your  manufacturers,  farmers,  and 
traders  require  and  expect  their  customary  facilities. 
The  general  pressure  for  money  in  fact  rather  increases, 
and  the  Bank  rate  goes  steadily  up. 

The  depreciation  in  the  value  of  shares  and  other 
property — which  is  a  feature  and  consequence  of  the 
crisis — now  tempts  the  investing  class  of  your  customers 
to  draw  upon  their  credit  balances.  The  more  ex- 
citable of  your  depositors,  startled  perhaps  by  the 
failure  of  a  bank  somewhere, — it  matters  little  where  or 
which,  when  there  is  panic  in  the  air — come  for  their 
money,  to  withdraw  and  hoard  it.  The  pressure  becomes 
increasingly  severe ;  and  half  a  score  of  failures,  more 
or  less  serious,  in  a  few  days,  give  intensity  to  the  crisis. 

One  step  further  and  we  are  on  the  verge  of  a 
catastrophe :  another  million  of  gold  leaves  the  Issue 
Department,  the  rate  is  put  up  to  lo  per  cent,  and  the 
strain  reaches  that  point  of  tension,  when  something 
must  give  way,  or  our  monetary  system  come  to  a 
dead  lock. 

Fortunately,  at  the  last  moment,  the  Government  of 
the  day  suspend  the  Act  of  1844:  and  behold,  before 
the  day  is  out,  the  Panic  has  disappeared,  like  the  base- 
less fabric  of  a  vision. 

And  what  has  Government  done  ?  It  has  simply 
relieved  the  public  mind  of  a  dread  which  threatened 
our  whole  monetary  system  with  paralysis.  It  has 
made  arrangements  with  the  Bank  of  England,  under 
which  its  notes  may  be  had,  on  conditions — at  a  price  ; 
and  that  moment  apprehension  begins  to  subside,  and 
the  currency,  freed  from  general  arrest  in  bankers' 
safes,  merchants*  cash  boxes,  and  the  secret  hiding 
places  of  the  timid,  begins  to  flow  again  through  the 
arteries  of  our  monetary  system. 

Briefly  stated,  these  were  some  of  the  leading  features 


LET.  xLi.]  The  Future  Outlook,  311 

of  the  panics  of  1847,  1857  and  1866;  and  the  lesson 
which  they  hold  for  us,  would  seem  to  lie  mainly  in  the 
fact,  that  each  panic  was  brought  to  a  climax  by  a  drain 
of  gold. 

Now  a  drain  of  gold  is  usually  the  result  of  overtrading 
or  speculation.  That  being  the  case,  the  question  which 
we  have  next  to  ask  is — Have  we  seen  the  last  of  over- 
trading and  speculation  ?  We  might  almost  as  well  ask, 
have  we  seen  the  last  of  human  nature.  We  have  not 
seen  the  last  of  these  things.  On  the  contrary,  when 
they  next  take  place  they  will  probably  be  on  a  larger 
scale  than  heretofore, — a  scale  proportioned  to  the  enor- 
mous increase  in  our  commercial  and  monetary  transac- 
tions since  1866,  the  time  of  our  last  panic.^  It  ii 
possible  indeed  to  imagine  such  a  conjunction  of  dis- 
turbing events  and  adverse  influences,  at  some  critical 
point  in  the  future,  as  may  result  in  more  intense 
pressure  upon  our  monetary  system  than  it  has  ever 
Suffered  in  the  past ;  unless  when  the  evil  time  comes, 
the  Act  of  1844  is  promptly  suspended,  or  has  been 
judiciously  amended  meanwhile. 

As  matters  stand,  the  Ministry  of  the  day  must  either 
look  helplessly  on  during  the  march  of  a  crisis,  and  see 
the  country  arrive  at  a  condition  of  monetary  dead-lock, 
or  take  the  grave  responsibility  of  suspending  an  Act  of 
Parliament  Would  it  not  be  a  more  politic  arrange- 
ment, by  means  of  a  short  rider  to  the  Act,  to  empower 
the  Government,  when  things  shall  arrive,  in  their  judg- 
ment, at  panic  point,  to  suspend  the  restrictive  clauses 
of  the  Act, — the  same  high  rate  of  discount,  be  it  8,  or 
10,  or  12  per  cent.,  being  maintained,  until  any  excess  of 
issues  thus  occasioned  shall  have  returned  to  the  Issue 
Department  and  been  cancelled?  The  probability  is 
that  no  such  excess  would  then  ensue.    What  adds  to 

»  In  England,  as  elsewhere,  there  were  signs  of  incipient  financial 
panic  during  the  last  few  business  days  before  the  declaration  of  war 
against  Germany  on  the  4th  August,  191 4,  but  the  timely  and 
energetic  measures  taken  by  the  Government  speedily  allayed 
apprehension. 


312  The  Country  Banker.  [let.  xli. 

the  intensity  and  peril  of  a  money  crisis,  is  the  well- 
founded  dread  that  the  time  is  at  hand,  when,  owing  to 
the  operation  of  the  Act,  it  will  be  impossible  to  obtain 
bank  notes  at  any  price  or  at  any  sacrifice  :  hence  the 
forestalling  and  hoarding,  in  view  of  eventualities,  which 
locks  a  large  portion  of  the  currency  up,  and  practically 
withdraws  it  for  the  time  being  from  circulation  or  use. 

There  is  nothing  revolutionary  in  the  suggestion  here 
made :  on  the  contrary,  it  is  precisely  what  has  been 
done,  and  with  the  happiest  results,  on  each  of  the  three 
occasions  on  which  the  Act  has  been  suspended.  All 
that  I  would  urge  is  that,  in  this  respect,  the  measure 
shall  be  rendered  self-acting,  and  not,  as  at  present,  self- 
destructive.  Let  its  relaxation  at  the  right  moment  be 
a  fulfilment  of  the  law  and  not  a  breach  of  it. 

The  Act  makes  no  provision  for  an  abnormal  con- 
dition of  things.  Its  working  is  faultless,  so  long  as  the 
fimes  are  easy,  and  there  is  smoothness  in  the  money 
market ;  but  when  there  comes  a  general  breakdown  of 
credit,  the  Act  in  its  operation,  so  far  from  allaying 
public  alarm,  enhances  it  to  a  point  bordering  on  frenzy, 
and  then  breaks  down  itself 

'Notwithstanding,'  says  Mr.  John  Stuart  Mill,  'the 
beneficial  operation  of  the  Act  of  1844  in  the  first  stages 
of  one  kind  of  commercial  crisis,  (that  produced  by  over- 
speculation)  it,  on  the  whole,  materially  aggravates  the 
severity  of  commercial  convulsions :  and  not  only  are 
contractions  of  credit  made  more  severe  by  the  Act — 
they  are  also  made  greatly  more  frequent.' 

The  framers  of  the  measure  would  appear  to  have 
taken  for  granted  the  perpetual  sanity  of  all  classes  of 
the  community  in  respect  of  monetary  affairs,  and  made 
no  provision  for  casual  aberrations.  The  Act  was  not 
framed,  so  as  to  yield  or  bend  for  a  moment  to  that 
final  rush  of  unreason  and  alarm  which  culminates  in 
panic,  and  like  a  tidal  wave  sweeps  all  before  it,  the  Act 
itself  included. 

It  may  be  said  that  it  is  for  the  public  advantage  that 
the  strength  or  weakness  of  our  banking  system  should 


LET.  xLi.]  The  Future  Outlook.  313 

now  and  then  be  put  to  the  test.  There  is  no  objection 
to  this.  The  objection  is  to  the  construction  of  the  test, 
the  peculiarity  of  which  is,  that  its  application  is  calcu- 
lated to  embarrass  the  soundest  institutions  equally  with 
the  weakest.  In  its  operation  it  presses  alike  upon  the 
prudent  and  the  reckless.  If  there  are  any  weak  places 
in  our  banking  system,  a  pressure  of  less  than  10  per 
cent  will  assuredly  find  them  out.  A  five  per  cent,  rate 
sufficed  to  sink  the  West  of  England  Bank,  and  the  City 
of  Glasgow  Bank  went  down  in  a  monetary  calm. 

But  banks  and  bankers  are  not  alone  concerned  in  the 
operation  of  the  Act  of  1844.  They  can,  in  most  cases, 
protect  themselves,  by  a  peremptory  recall  of  advances 
and  curtailment  of  discounts ;  but  this  is  only  to  pass 
the  pressure  on  to  merchants,  manufacturers,  traders  and 
others,  so  that  it  comes  to  rest  in  the  end  upon  the 
shoulders  of  the  business  community. 

The  working  of  the  Act  in  a  time  of  excitement  and 
swiftly  spreading  apprehension,  suggests  to  the  imagina- 
tion, a  boiler  with  its  safety-valve  screwed  down  and 
\  blazing  furnace  underneath  ;  whereas  the  proposed 
power  of  relaxation  would  enable  it,  when  the  pressure 
became  extreme,  to  blow  off  steam,  instead  of  some  day 
blowing  our  monetary  system  into  space, — which  it  may 
conceivably  do,  the  first  time  the  suspension  of  the  Act 
is  too  long  deferred  by  an  irresolute  Government. 

It  may  be  urged  that  any  relaxation  in  the  stringency 
of  the  Act  might  lead  to  a  suspension  of  specie  pay- 
ments. The  reply  is  that  we  have  put  this  hazard  to  the 
test  on  three  memorable  occasions,  and  that  no  such 
result  has  followed,  or  was  ever  within  the  range  of 
probability.  The  danger  to  be  feared  did  not  lie  in  that 
direction.  The  danger  was  that  if  the  Act  had  not  been 
suspended  when  it  was,  the  country  was,  on  each  occasion, 
within  measurable  range  of  the  suspension  of  all  pay- 
ments whatsoever,  in  specie  or  anything  else. 

In  pursuance  of  your  inquiry  then, — Have  we  seen  the 
last  of  our  money  panics  ? — it  has  to  be  confessed  that 


314  The  Country  Banker,  [let.  xll 

we  have  not,  thus  far,  found  much  encouragement  for  the 
future,  in  either  the  past  or  the  present  condition  of 
things  ;  and  we  have  yet  to  add  to  the  adverse  features 
of  the  situation,  the  humiliating  fact  that,  even  in  this 
nineteenth  century  of  civilization  and  culture,  we  are  not 
yet  exempt  from  the  folly  and  mischief  of  *  runs.'  .^j 

In  the  scare  which  had  its  rise  in  the  failure  of  the| 
City  of  Glasgow  Bank  in  Oct.  1878,  only  seven  years  ago, 
and  culminated  in  the  stoppage  of  the  West  of  England 
Bank  in  the  following  December,  some  of  the  most 
powerful  banks  in  England  were  fiercely  run  upon,  and 
notably  those  of  unlimited  liability.  What  had  usually 
been  deemed  to  afford  the  greatest  security  was,  in  1878, 
suspected  to  afford  the  least.  There  was  this  peculiarity, 
moreover,  in  the  direction  taken  by  the  movement :  it 
did  not  assail  the  Banks  that  held  deposits  by  tens  or 
hundreds  of  thousands ;  it  was  the  Banks  that  held 
deposits  by  threes  and  fives  and  tens  of  millions,  which 
had  to  face  the  storm.  We  have  to  take  into  account, 
therefore,  that  our  next  scare  may  take  a  lower  and  wider 
range.  Having  assailed  the  Titans  of  banking  in  vain,  the 
next  paroxysm  of  distrust  may  try  conclusions  with  the 
smaller  and  more  numerous  class  of  banking  institutions ; 
to  meet,  let  us  hope,  with  a  like  result, — a  defeat  along 
the  whole  line  of  attack. 

On  the  other  hand,  it  is  in  our  favour  that  there  can 
never  again  be  a  failure  like  that  of  the  City  of  Glasgow 
Bank,  nor  even  a  modified  edition  of  Overend,  Gurncy 
&  Co.  The  all  but  universal  adoption  of  the  Act  of 
1879,  has  rendered  calamities  Hke  these  beyond  the 
reach  of  accomplishment  by  any  stretch  of  human 
wickedness  or  imbecility.  Bank  failures  we  may  have 
now  and  then,  but  not  catastrophes  like  these.  Our 
future  failures,  if  any,  will  arise  from  imprudent  bank- 
ing, —  from  the  locking  up  of  deposits  in  unavailable 
forms  of  security,  to  cover  excessive  rates  of  deposit 
interest;  but  there  is  no  reason  to  suppose  that  this 
description  of  banking  prevails  to  any  extent. 


I 


LET.  xLi.]  The  Future  Outlook,  315 

The  existence  of  Leeman's  Act  *  is  another  point  in 
favour  of  our  future  outlook.  Under  that  Act,  the  broker 
who  offers  bank  shares  for  sale  must  have  the  shares  to 
sell.  He  must  give  the  name  of  the  seller,  or  the  numbers 
of  the  shares  to  be  sold.  He  cannot  now  execute 
unlimited  '  bear '  operations  in  the  shares  of  any  Bank 
which  he  may  select  for  attack,  and  thus  place  its  credit, 
and  possibly  its  existence,  at  his  mercy.^ 

It  was  argued  against  the  measure  that  only  weak  and 
badly  managed  banks  had  anything  to  fear  from  this 
process ;  but  that  was  not  so.  Moreover,  badly  managed 
banks  arc  bound,  in  time,  to  go  to  the  wall,  without 
this  questionable  form  of  propulsion.  The  Act  was 
designed  by  the  Legislature  to  protect  perfectly  solvent 
Banks  against  a  form  of  attack  which,  in  critical  times, 
might  bring  the  strongest  Bank  into  a  position  of  embar- 
rassment and  danger. 

It  is  a  fallacy  to  contend  that  the  market  has  the  same 
moral  right  to  speculative  dealings  in  the  shares  of 
Banks  as  in  those  of  Railway  companies.  However 
much  you  may  depreciate  the  price  of  any  Railway 
Stock  by  bearing  operations,  the  undertaking  itself 
remains  intact :  but  it  may  be  far  otherwise  with  a  Bank. 
It  depends  for  its  existence  upon  credit  Sap  that,  by 
fictitious  sales  of  its  shares  in  a  time  of  monetar>' 
excitement,  and  bring  its  depositors  upon  it  in  a 
rush,  and  you  smash  up,  it  may  be,  a  perfectly  solvent 
institution. 

It  has  been  argued  that  the  Act,  by  prohibiting 
*  operations  for  the  fall*  in  Bank  shares,  leaves  the 
shareholders  in  discredited  or  insolvent  concerns  in  a 
fool's  paradise,  until  it  is  too  late  to  get  rid  of  their 
responsibilities  :  but  as  they  can  only  rid  themselves  of 

•  30*  Victoria,  Chap.  29. 

»  This  Act  provides  that  all  contracts  for  the  sale  or  purchase  of 
bank  shares  or  stock  ^excepting  shares  or  stock  of  the  Bank  of 
England  or  the  Bank  01  Ireland)  must  set  forth  the  numbers  of  the 
shares  or  stock,  or,  if  there  are  no  distinguishing  numbers,  the  name 
of  the  registered  proprietor.  The  Act  is  still  in  force,  but  its 
provisions  ar«  disregarded  on  the  London  Stock  Exchange. 


3i6  The  Country  Banker,  [let.  xul 

these  by  transferring  them  at  the  last  moment  to  the 
shoulders  of  other  people,  a  measure  which  puts  under 
modified  restraint  this  manner  of  escape  from  liability, 
will  scarcely  be  looked  upon  by  the  community  at  larg# 
as  a  grievance  to  be  removed. 

Had  the  Act  not  been  in  operation  in  1878,  when 
some  of  the  strongest  banks  in  the  country  were  assailed 
for  weeks  together  with  persistent  virulence,  it  is  at  least 
conceivable  that  the  scare  of  that  time  might  have  been 
so  enlarged  and  intensified,  as  to  lead  to  a  crisis  of 
destructive  range  and  severity. 

The  panics  of  the  future  will  be  influenced  to  some 
extent  in  their  direction  and  force  by  the  action  of  the 
public  press.  Its  universal  eye  will  always  be  upon  us. 
What  any  leading  newspaper  says  to-day,  as  to  the 
monetary  outlook,  will  be  repeated  throughout  the  land 
in  a  million  or  so  of  broad  sheets  to-morrow  morning. 
The  press  cannot,  it  is  true,  prevent  the  fabrication  of 
malicious  and  mischievous  rumour,  but  it  can  refuse  to 
give  it  circulation.  In  the  strained  condition  of  things 
which  precedes  and  heralds  panic,  what  is  to  be  said,  for 

example,  of  some  such   paragraph  as  this 'Twc 

Banks  in shire  are  freely  spoken  about '  ?     What 

advantage  such  a  paragraph  can  yield  to  any  one,  passes 
comprehension ;  but  the  evil  it  may  do  is  not  difficult  of 
estimate.  Before  night  of  the  day  of  publication,  not 
two,  but  half-a-score  of  Banks  will  be  freely  spoken  about, 
their  depositors  and  shareholders  needlessly  alarmed, 
and  fresh  fuel  added  to  the  prevailing  excitement 

The  nearly  universal  adoption  by  our  Joint  Stock  Banks 
of  *  reserve  liability '  is  another  element  in  the  problem 
of  the  future.  It  will  afford  a  solid  ground  of  assurance 
to  depositors  in  times  of  pressure  and  alarm.  Capital  in 
this  form  cannot,  as  they  know,  be  called  up  and  lost 
in  the  business  of  a  bank.  It  constitutes  an  inviola- 
ble reserve  for  their  protection,  and  insures  the  safety 
of  their  deposits,  whatever  may  happen  to  the  Baal 
itself. 


I 


I 


A 


LIT.  xLi.]  The  Future  Outlook,  317 

A  further  and  abiding  ground  of  confidence  to 
depositors  and  the  public  will  be  found  in  the  com- 
pulsory publication,  at  least  once  a  year,  of  the  balance- 
sheet  of  well-nigh  every  Joint  Stock  Bank  in  the  three 
kingdoms,  certified  by  independent  auditors,  and  setting 
forth  the  liabilities  of  the  Bank  on  one  side  and  its 
resources  in  hand  and  in  reserve  on  the  other.  The 
financial  position  of  the  Banks,  therefore,  need  no  longer 
be,  as  it  was  a  few  years  ago,  a  matter  of  conjecture, 
more  or  less  wild  and  alarming,  in  anxious  times.  It 
will  be  known  to  all,  and  the  knowledge  can  hardly  fail 
to  have  a  tranquillizing  effect  on  the  minds  of  a  large 
and  influential  section  of  the  community  in  the  monetary 
vicissitudes  of  the  future. 

Nevertheless,  we  must  not  rely  on  either  reserve 
liability  or  compulsory  audit  or  obligatory  balance- 
sheets,  as  unfailing  panaceas  for  panic  in  all  time  to 
come.  There  have  been  times,  and  there  may  be  again, 
when  sections  of  the  community  become  deaf  to  reason. 
If  there  is  panic  about,  no  matter  how  baseless  it  may 
be,  they  are  sure  to  catch  it  with  greater  or  less  severity. 
Be  your  reserve  liability  of  what  amount  it  may,  or  your 
financial  position  a  very  fortress  and  citadel  of  strength, 
— if  they  hear  of  people  running  for  their  money,  no 
matter  where,  nor  for  what  reason,  they  will  run  too. 

My  counsel  to  you,  therefore,  for  what  it  may  be 
worth,  would  be  to  maintain  your  finances  at  all  times, 
and  under  all  circumstances,  in  a  position  of  impregnable 
strength  ;  because  panic,  when  it  comes,  will  travel  like 
other  things  now-a-days  on  electric  wings.  Be  less 
anxious  for  your  dividend  than  solicitous  about  your 
financial  safety.  Let  that  be  assured,  whatever  the 
immediate  effect  on  your  profits  may  be.  A  dividend 
based  on  financial  strength,  may  suffer  occasional  abate- 
ment ;  but  one  earned  by  a  more  adventurous  policy,  at 
the  cost  of  financial  weakness,  is  a  precarious  one  at  the 
best ;  at  the  worst,  it  may  fail  you  altogether  some 
day,  and  dividend.  Bank,  and  Manager  simultaneously 
disappear. 


3l8  The  Country  Banker,  [let.  xu. 


I 


I 


If  the  movement  by  depositors  on  the  Banks  in  the 
December  of  1878  had  become  general,  and  been 
coincident  with  a  commercial  crisis,  a  ten  per  cent. 
Bank  rate,  a  rapid  depletion  of  the  reserve  in  the 
Banking  Department,  and  a  persistent  drain  of  bullion, 
the  ordeal  for  English  banking  might  have  been  one 
of  unexampled  severity.  In  the  struggle  for  existence 
which  would  have  ensued,  the  question  of  the  hour 
would  have  been,  not  the  forthcoming  dividends  of  the 
Banks,  but  the  survival  of  the  fittest. 

Be  especially  on  your  guard  in  sluggish  times  of 
business  and  low  rates  of  interest  for  money.  The 
temptation  to  depart  from  the  lines  of  prudent  banking 
is  then  at  its  worst  It  is  then,  if  ever,  that  a  bank 
is  drawn  towards  'chancing  it' — towards  advances  on 
securities  of  an  outside  character  and  uncertain  negoci- 
ability,  in  order  to  secure  a  larger  return  of  interest.  m 

We  have  seen  what  this  may  lead  to,  should  pressure  'J 
come  upon  a  bank  unawares.  The  stream  of  monetary 
events  runs  with  smoothness  to  the  very  verge  of  the 
rapids,  and  you  may  adventure  upon  its  current  once  too 
far.  Your  only  safe  rule  is  steadfastly  to  abide  by  the 
limits  which  you  have  assigned  to  your  various  forms  of 
asset,  so  that  you  may  always  have  your  resources  « 
well  in  hand,  come  what  may.  ■ 

Let  your  device  as  a  banker  be  that  of  the  strong 
man  armed,  and  your  motto  AYE  READY.  You  will  not 
otherwise  be  prepared,  at  all  points  and  at  all  times,  to 
encounter  and  overcome  the  difficulties  which  may  be  in 
store  for  English  banking  in  the  large  uncertainties  of 
the  future.  Above  all  things,  in  the  regulation  of  your 
finances,  place  no  reliance  on  the  chapter  of  accidents 
for  seeing  you  through.  *  He  digs  in  sand  and  lays  his 
beams  in  water,'  says  Feltham,  *  who  builds  upon 
events  which  no  man  can  be  master  o£' 


INDEX. 


ACCEPTANCES  OF  CUSTOMERS, 

n,  8l. 

Acceptors.    Safety  of,  75. 

Accounts  exempt  from  com- 
mission, I44|  151. 

Accounts  of  Customers. 
Giles  Borax,  10  —  Stokes  & 
Co.,  12 — Samuel  Titson,  47— 
Philip  Bargood,  71— Bricknall 
&  Co.,  117— L.  S.  D.,  149-y 
Silas  Wheeler,  150  — Basil 
Crofton,  1 6a 

Act  of  1844.  Suspension  o^ 
310. 

Act  of  1879.  Provisions  ol^ 
258—results  of,  260. 

Advances — in  case  of  death,  37 
— fccall  of,  59 — advances  to 
committees,  59-— object  of  ad- 
vances to  be  dedaired,  60 — 
recall  ofj  resented,  62— pro 
formi  Unut  of,  225,  229— 
advances  on  railway  stock 
and  warrants,  227 — on  Bank 
credits,  327— on  the  Bank's 
shares,  231. 

Annuitants  as  principals,  9— 
as  sureties,  94. 

Assets  of  Bank.  Constructive 
estimate  of,  207— relative  fusi- 
bility of,  255— average -in- 
terest product  of,  270 


Assets  of  Traders,  19, 24,  28 
Attendance,  178. 
Audit.   Of  Bank  accounts,  239, 
259,  316. 


Bad  Debts.   Provision  for,  273. 

Balance-sheet  of  the  Bank, 
207 — compulsory  publication 
of.  239,316. 

Balance-sheets  of  Traders. 
Their  benefit  to  clients,  15 — 
form  of  balance-sheet,  18 — 
appraisement  of  assets,  19,  23 
— insurance  against  fire,  19 — 
balance-sheets  of  Daniel  Hyde, 
21  —  Railton  &  Co.,  21  — 
Abel  Trowell,  22— fraudulent 
balance-sheets,  25. 

Bank  Charges,  144—153. 

Bank  Credits,  227. 

Bank    Failure.     Disastrous 

effects  of  a,  216,  304. 
Bank  Ledger.  Evidence  of,  10. 
Bank  of  England.    Average 

rate  of  discount,  137. 
Bank  Premises,  171. 
Banker.    Change  of,  55— use 

of  a,  160. 
Bankers*  Institute,  124. 
Banker's  Opinion,  A,  15, 17, 

189. 


320 


Index, 


Banking  Finance.  Balance- 
sheet  of  the  Bank,  208 — con- 
struction thereof,  207 — move- 
ments in  deposits,  209 — the 
financial  reserve,  210 — a  re- 
serve of  20  per  cent  211 — a 
reserve  of  one-third,  217 — 
composition  of  reserve,  220 — 
Consols  as  a  component  of 
reserve,  221— rediscounting, 
222 — inadequate  reserves,  2 16, 
223. 

Banking  Profits,  269. 

Banking  Risks,  254,  271. 

Bankruptcy.  Cases  for  leni- 
ency —  over-stringency  — 
reasons  against  nursing  of  ac- 
counts— compositions  versus 
bankruptcy,  —  the  new  Act, 
64 — 69. 

Bearer  Securities,  102— cus- 
tody of,  103. 

Bill-Case,  analysis  of  contents, 
255. 

Bill  of  Sale  as  cover,  113. 

Bills  of  Exchange.  Varie- 
ties of— drawn  against  ship- 
ping— brokers'  bills — remit- 
tance and  inland  drawn  paper 
—kite-flying,  243—256.  See 
also  Negociable  Bills  and 
Trade  BiUs. 

Bills  of  Lading  as  security, 
108. 

Building  Land  as  security, 
117. 

Buildings  and  Machinery 
as  security,  119. 


Capital  and  Shares.  Work- 
ing capital  —  denomination 
of  shares — liabiUties  and  re- 
sources— additions  to  capital 
— reduction  of,  262—268. 


Capital  uncalled,  28. 
Cash  Orders,  89. 
Cashier.    Duties  of,  5. 
Chancery— Case  of  De  Vere, 

37. 
Cheques  drawn  in  Blank,  i  i. 
Chief  Manager.  Office  of,  202. 

Chief  Secretary.  Duties  of, 
203. 

Choiceof  First-class  Paper, 
254. 

Circulation  of  Notes,  156 

— Scottish  currency,  146. 

City  of  Glasgow  Bank,  257, 

312. 
Clergymen  as  principals,  9— 

as  sureties,  94. 

Collateral   Securiit,  96— 

IIO. 

Commission,  exemptions  from, 
144  —  146,  151  —  on  with- 
drawals, 148 — on  overdrafts, 
149. 

Committees,  advances  to,  59. 

Competition  in  Banking,  192 

—196. 
Compulsory  Audit  of  Bank 

accounts,  240,  259,  316. 

Correspondence,  186— 191. 

Country  Banks  and  Dis* 
COUNT  Houses,  253. 

Cover  for  Debt.  Safety  de- 
pendent on  security — danger 
of  exceptions  —  constraining 
influence  of  usage — character 
as  security,  32 — 43. 

Credit  Balance,  A,  not  proof 
of  means,  12  —  interest  on 
credit  balance,  137,  149,  160, 

Credit  of  Limited  Com- 
panies, 27—31. 

Credit,  Personal,  6—15. 


Index. 


3" 


Currency  of  Bills,  83. 

Customers'   Accounts. 

Accounts  of  Customers. 


Se: 


Deposit  of  Title  Deeds,  96. 

Deposits.  Varieties  of,  126— 
runs  upon,  125 — 134— interest 
on,  135  —  Country  exceeds 
London  rate,  136 — movements 
in  deposits,  209 — London  and 
Country  deposits,  223. 

Directorate,  The.  Consti- 
tution of  board — compulsory 
retirement — fresh  blood— am- 
ateur directors  —  directors' 
accounts — visits  to  branches, 
289—295. 

Discount  Houses  and  Coun- 
try Banks,  253. 

Discount  on  Bills.  Bank 
of  England  average,  137  — 
Country  rate  and  London  rate, 
139. 

Discounts.  See  Bills  of  Ex- 
change. 

Dividend  and  Bonus  on 
capital,  275— on  capital  and 
reserve,  277. 

Drafts  after  Date,  154. 

Drafts  on  Demand,  155. 

Drawers.    Safety  of,  76. 

Duties,  routine,  178—185. 

Exceptional  Rates.  Impo- 
licy of,  148. 

Expenses,  Office,  171— 177. 

Failure  of  a  Bank,  216,  304. 

Finance  of  Banking,  207. 

Fire  Insurance,  19. 

Fraudulent  Balanck- 
gHEETS,  25. 


Function  of  Manager,  1—5, 
178-185. 

Future  Outlook,  The.  Gold 
held  by  Banks,  306 — liquida- 
tive  property  of  currency,  307 
— variations  in  its  efficiency, 
309  —  rise  and  progress  of 
panic,  310 — suspension  of  the 
Act  of  1844,310 — proposed 
rider,  311 — panics  of  the 
future,  313 — runs  still  pos- 
sible, 313 — Leeman's  Act,  314 
— influence  of  the  press,  315 
— reserve  liability  and  com- 
pulsory audit,  316 — no  abso 
lute  preventive  of  panic,  316 
—  conservation  of  resources 
the  only  safeguard,  317. 

Guarantee.    Personal,  91. 

House    Property   as   a   se- 
curity,  109. 


Incidental  Expenses,  173. 

Indorsers.     Safety  of,  76. 

Insolvent  Trading,  50—53. 

Institute  of  Bankers,  124. 

Instructions  from  Head 
Office,  183. 

Insurance  against  Fire,  19. 

Interest.  On  country  deposits, 
135 — basis  of  rate— danger  of 
excessive  rate,  137— interest 
on  overdrafts,  142 — on  creditor 
accounts,  147 — on  the  aggre- 
gate assets  of  a  Bank,  270 — 
average  bill-brokers'  rate,  270. 


Kite  -  flying.  Bargood  on 
Laxey  &  Co.,  71—73,  81— un- 
readable   bills,    81— Webber 


322 


Index, 


KlTE-TLYlUG—con^inueii. 
on  Wefton  &  Co.,  248— re- 
duplicated bills  —  bills  for 
values  in  expectancy,  249— 
the  higher  levels  of  kite-fly- 
ing, 251. 


Large  Accounts.  Dangers  of 
— experiences  of  Overend  & 
Co.,  and  City  of  Glasgow 
Bank— small  accounts  to  be 
preferred  —  Synkheim  Bro- 
thers —  future  restriction  of 
large  accounts,  235—242. 

Law  of  Property,  simplifi- 
cation of,  100— registration  of 
titles,  100. 

Leeman'3  Act,  314. 

Letters  to  Customers,  188. 

Letters  to  Head  Office, 
187. 

Life  Policies  as  a  security, 
III. 

Limited  Companies.  Credit 
of—Imperial  Slab  Co. — ana- 
lysis of  assets — uncalled  ca- 
pital—liquidation— guarantee 
of  directors,  27 — 31. 

Liquidation  of  a  Company, 
29. 

Loan  Bills.  Bowdler  on  Star- 
key,  79— renewals,  81 — un- 
readable bills,  81— customers' 
acceptances  to  be  watched — 
promissory  notes— currency 
of  bills,  83. 

Local     Bills    unmarketable, 

83 
Local  Shares  as  cover,  104. 

Lodgments  on  country  ac- 
counts, 145. 

London  Interest  on  deposits, 
136. 


Machinery  as  security,  119. 
Manager.     Branch,  function 

of,  I — 5 — routine  duties,  178 — 

185. 
Manager    in    Chief,    Office 

of,  202.  * 

Memorandum    of    Deposit, 

100. 
Mining  Securities,  121. 
Mortgage,  equitable,  98— short 

form  of,  100. 
Mutual  Benefit  Bank,  197. 

Naval  and  Military  Offi 
CERS  a£  principals,  9 — as 
sureties,  94. 

Negociable  Bills.  Must  be 
payable  in  London,  87 — lo- 
cally accepted  bills  not  nego- 
ciable, 87 — troublesome  to 
collect,  88. 

New  Bank  for  Oxborough,  197. 

New  Branches.  Opening  of, 
285. 

Nursing  of  Accounts.  Dan- 
gers of,  66,  238. 

Opening  of  New  Accounts, 
15- 

Opening  or  New  Branches 
285. 

Outlook,  The  Future,  306- 
318. 

Overdrafts.  S^e  Overdrawn 
Accounts.  ^, 

Overdrawn  Accounts.  Pro 
fits  of,  44 — financial  objec- 
tions, 45 — difficulty  of  recall 
45 — a  lock-up  of  resources 
— not  always  a  gain  to  bor- 
rower, 47 — case  of  Samuel 
Titson,  47— an  injustice  to 
solvent  traders,  51— insolvent 


Index, 


323 


Overdrawn  Accounts— ^^«. 
trading,  52— occasional  over- 
drafts, 54 — unscrupulous  bor- 
rowers, 55 — means  of  repay- 
ment should  invariably  be 
tangible,  56 — exceptional  ac- 
counts, 57 — financial  limits  of 
overdrafts,  58— interest  on, 
142— commission  on,  149. 

OVEREND  &  Co.,  3I4» 

Own  Notes,  156. 

OxBOROUGH  Mutual  Bene- 
fit Bank,  The,  197. 


Panic.  Rise  and  progress  of, 
306— panics    of     the    future, 

Personal  Credit.  As  rest- 
ing on  hearsay —measure  of 
its  value — annuitants  as  bor- 
rowers— evidence  of  the  Bank 
Ledger — testimony  of  a  ba- 
lance-sheet, 6 — 13. 

Personal  Guarantee,  91. 

Private  Conduct  or  Offi- 
cers, i8i. 

Professional  Men  as  princi- 
pals, 9 — as  sureties,  94. 

Profits  of  Banking,  269— 
minuteness  of  items,  273. 

Promissory  Notes,  83. 

Provision  for  Loss,  273. 


Railway  Stock  as  s^';urity, 
loi,  227, 

Reading  of  Accounts.     See 
Accounts  of  Customers. 

Recall  of  Advances.  59-         i      *^*'' 


Re-discount    of  Bill<,  80^ 

223. 

Renewals,  81. 

Reserve  Liability,  257-261, 
267,  316. 

Reserve,  The  Financial,  210 
— reserve  of  20  per  cent.,  2 1 1 
— reserve  of  one-third,  217 — 
composition  of  reserve,  220 — 
Consols  the  highest  security, 
222. 

Responsibilities  of 
Officers,  184. 

Rest  or  Surplus  Fund. 
Based  on  extent  of  the  Bank's 
risks — its  reduction  impolitic 
— sundry  methods  of  partition 
reviewed,  279 — 284. 

Reversions  as  security,  112. 

Rights  and  Duties  of 
Shareholders.  As  co- 
partners in  the  business — 
mischievous  questioning  at 
meetings  —  productive  work 
for  shareholders — their  duty 
in  time  of  panic— the  suicidal 
shareholder — a  Bank  failure, 
296—305. 

Risks  of  Banking,  254,271. 

Runs,  128,  313,  315. 


Safe  Custody,  103. 

Salaries,  165. 

Second  Mortgages  at  cover, 

114. 
Secretary,  duties  of,  203. 
Securities.  General,  91—124. 
Securities  involving  liability, 


m 


Index, 


Securities,   Personal,  91 — 

95- 
Securities  to  Bearer,  102— 

custody  of,  103. 

Shareholders.— Advances  to 
shareholders  of  limited  means 
— result  in  a  wind-up — choice 
of  new  proprietors  in  hands 
of  Board,  231 — 234— rights 
and  duties  of  shareholders, 
396—305. 

Shares  of  the  Bank.  De- 
nomination of,  265 — not  ready 
of  sale,  303. 

Shares,  local,  104 — subject  to 
calls,  120. 

Shipping  Securities,  105. 

Small  Accounts  as  compared 
with  large,  237. 

Sub-Branches,  287. 

Subscriptions  and  Chari- 
ties, 175. 

Sureties.  Financial  worth  of, 
94. 


Title  Deeds  as  security,  96 — 
registration  of,  100. 


Trade  Bills.  Cartridge  on 
Booker  &  Co.,  70— 78— Bar- 
good  on  Laxey  &  Co.,  71 — 
accounts  to  be  watched,  73 — 
a  man  should  have  only  one 
banker,  74,  252 — safety  of 
acceptors,  75  —  safety  of 
drawers  and  indorsers,  76 — 
synopsis  ofadiscountaccount, 
76 — the  discount  of  customers' 
acceptances  undesirable,  77 — 
currency  of  bills,  83.  See 
also  Bills  of  Exchange  and 
Negociable  Bills. 

Transfers  in  Blank,  103 — 
at  risk  of  borrowers,  104. 


Uncovered  Advances.  Dan- 
gers of,  33,  41. 

Unreadable  Transactions, 
81. 

Use  of  a  Banker,  160. 

Visits  to  Branches,  294. 

Warrants,  advances  on,  227. 
Work.    Distribution  of,  205. 


THE    END. 


THI  WHITEFRIARS  PRtoS,   LTD.,  FRINTEE3     LONDON  AND  TONBRIDa*. 


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